Everyone wants to be rich. But, how many of them actually make efforts to get rich?
And just by earning a lot of money, you’ll not get rich. You’ll also have to invest this income in the right instruments at the right time so that you are able to maximise your wealth while ensuring that you have adequate liquidity at all points of time.
And to ensure this – it is highly advisable that everyone has a financial plan. And to create a financial plan – you need not always go to a financial planner.
There are some simple time proven tips if implemented properly will lead to wealth maximisation. Some of these tips are mentioned below in this article.
Financial Planning Tips
- First Save then Spend
Most people do this the other way round. They 1st spend their income and the balance left after spending gets invested.
But this is not how it should be. This basically means that you are investing that amount of money which you were not able to spend.
If you intent to build wealth, then it should be the other way round. You should first take out some chunk of money for investment purpose and the balance should be spent.
This will not only ensure that proper allocation is being done but also ensure that you are not overspending.
2. Saving is just the beginning – Investment should be the Goal
Most people are taught that they should save some money but very few are taught that this money should also be invested in instruments which will help create wealth.
Money kept idle in bank accounts will only yield returns which will help you beat inflation. But, if your intent is to create wealth, then this money should be invested in sources which yield a much higher return in the long run.
3. Have an Emergency Fund
As the name suggests, an emergency can happen at any time. This could be loss of job or loss in business or loss in any other recurring source of income.
And for such circumstances, there should always be an emergency fund from where funds can be withdrawn for any unforeseen event and emergencies.
4. Adequate Life Insurance
A lot of people know and understand the importance of life insurance but very few people have adequate life insurance cover. Your life insurance term plan should be atleast 10 times of your annual income.
And in case you have just started your career, then this cover should be towards even higher end as at the start of your career – your salary is lower but increments are faster and higher as compared to somebody who has good no. of years of experience.
5. Retirement Planning
That day comes in everyone’s life when the person does not have any income but only has expenses. People wish it was the other way round wherein there are only incomes and not expenses but sadly that is not the case.
When a person retires, his monthly flow of income stops but he still has to keep incurring household expenses.
And therefore it is advisable for everyone to opt for a pension plan which will keep giving the retired person some income even after retirement which will help him meet his expenses.
Apart from pension plans, a person should also have sufficient corpus in liquid assets which will help him incur expenses post retirement.
Bonus Tip: Pay your Credit Card Bills on time
There is an old saying – There is no free lunch in this world. And this holds true when you spend via credit cards as well.
When you spend through your credit card, you have to pay at the end of the billing cycle which usually is a month. Moreover, you get a lot of discounts as well as points. The credit card company gives you so many benefits and encourages you to spend through credit card.
But these credit card companies are not doing any charity. But then, did you ever wonder why they are offering so many benefits.
A credit card company basically makes money by charging you a hefty interest rate on the late payments. So, they basically encourage you to spend via credit cards and by offering so many deals – some people end up overspending and are unable to repay their dues on time.
And in such cases, credit card companies levy a hefty penalty which in most cases is even more than 36% p.a. And this is how they make money.
There is no harm in using credit cards. But, not repaying the credit card company on time is one of the worst mistakes which people do and they end up paying hefty interest.
Therefore, it is highly advisable that the credit card bills are paid on time as the interest charged by the credit companies is extremely high.