5 Habits You Must Change to Create More Wealth
Everyone wants to be a millionaire. But wealth building is not a matter of chance. It can be achieved by making the right choices. Please note that fortune is not built overnight. Financial discipline, patience, and consistency are the keys to building wealth.
We have created a cheat sheet from the money habits of the wealthy to help you create your fortune.
Quicksand of Overspending
You must have heard the idiom that a fool and his money are easily parted. It's easy not to be a fool by budgeting your monthly expenses. It seems like a simple mantra, like 'spend less,' but it is hard to implement. We often don't pay attention to minor expenses that snowball into large chunks of expenditure every month. For example, consider a few cups of coffee you enjoy outside. The idea is don't fall into the trap of spending money before you save. This is especially true in our early years when we have just begun our careers. But everyone needs to adjust their expenses according to the money they make and not spend what they haven't earned.
Penny Saved is Penny Earned
Imagine having the money for the dream vacation you planned sometime back or enough funds for your children's education. Saving is a discipline successful people learned early. The best way to begin this habit is by signing up for automatic debits towards various savings and investment tools. A savings plan will ensure you have less money every month to spend. It is also crucial to note that you are losing money in the long run if it just sits in your bank account.
Rule number one in the art of wealth building is putting money to help you earn a passive income. Financially literate individuals don't rely on a single source of income; they build several streams over the years.
As soon as you receive your paycheck, clear your debts, followed by committing money to various savings and investment tools of a methodically planned portfolio. What remains is the money for your other expenses.
How to Save and Invest?
Systematic Investment Plans (SIPs) are an excellent way to build your investment basket based on your risk-taking ability, return expectations, and financial goals. SIPs look at different mutual fund schemes to build your wealth in the long run by interest income.
Let's look at Ajay and Shrishti, who are in their early twenties. Due to financial commitments and a lack of financial literacy, Ajay spends everything he earns. On the other hand, Srishti invests each month and increases her investment every year in a disciplined manner. After say 20 years Srishti would have been able to create a reasonable amount of wealth through her planned approach to investing. At the same time, Ajay is likely to have accumulated only debt, not wealth.
Look at investment options in the debt, stock, commodity, and money market to activate a passive income stream.
It's also time to recognise the benefits like tax* deductions. For example, a Unit Linked Insurance Plan (ULIP) is a great tool to claim deductions.
Get Rid of Wealth-Diminishing Habits
Debt is not a burden if taken for investments like buying a new house or funding your education. Imagine buying depreciating assets with a loan. Your monthly shopping sprees on your credit card or even buying a car with a car loan is not the smartest choice. Don't restrict your monthly income by paying high interest rates to someone else when you can earn that interest. An interest-free loan also comes with a financial commitment that diminishes your ability to save or invest. But what if there is a pressing need for funds? Just what a raincoat does on a rainy day, an emergency fund can do in a crisis. Taking lessons from the Covid-19 pandemic, consistently save to build a separate fund for emergencies so that you don't have to draw a high-interest personal loan.
Another major but often missed wealth-diminishing habit is ignoring inflation. Like rust corrodes a good piece of iron, inflation wears down your real return. Make sure you select investments that reduce the effect of inflation in the long run.
Start Savings For Your Retirement Early
A secure financial future is a safe future. It's never too early to start saving for your retirement. Just like your retirement goals, define short-term and long-term financial milestones to build a wealth timeline. A wealth timeline will ensure you have built sufficient funds for your life's next milestone. Apart from institution-offered financial assets, you might have seen people investing in physical assets for their retirement. Real estate is the most sought-after physical asset that will bring in passive income from rent in your later years.
Another critical aspect is sufficiently insuring your life with a ULIP Plan. You and your family need to review your insurance covers because inadequate insurance is as bad as no insurance. Look at plans like Tata AIA Life Insurance’s Sampoorna Raksha Supreme (UIN: 110N160V02 for insurance coverage up to the age of 100.
Earn While You Learn
People build their financial acumen over the years as they manage their wealth. You may meet a financial expert if you don't know how any of this works. The lack of financial knowledge is not an excuse and being disciplined in investing is the only way forward. While you learn, make sure you inculcate this habit in your children as well at an early stage. Don't forget that compounding of interest works like magic if started early. Depending on how old your children are, teach them the importance of saving. One should suggest them to create a recurring investment from their first paycheck.
As many schools do not have financial literacy as a discipline, make sure you and your children are better prepared to take charge of your wealth with these five habits.