Wealth Creation Mantra ...
Building wealth doesn’t happen by accident. We need to plan things meticulously and implement those systematically. Financial Independence is available to those who learn about it and work for it.
What is Financial Independence?
Financial Independence is a state of mind which can be felt when you are totally worry free about your finances. You stop thinking frequently about money matters in the back of your mind.
What is the benefit of Financial Independence?
Every one’s dream is to have high paid but stress free job. In reality, it is next to rare. But if you make yourself financially free by following proper financial plan your dependency on job will be minimal, and you can achieve FIRE (Financial Independence Retire Early) stage early in your life .
If we want to change our financial life, we only need to make a few small changes. This idea is called kaizen. And it’s incredibly powerful.
Kaizen is a Japanese word that means “continual improvement”. It refers to the process of making positive change and improvement through small, steady steps. It’s based on the wisdom of Tao Te Ching, a Chinese text famous for the proverb: “A journey of a thousand miles begins with a single step”. Ask anyone who’s conquered Everest, built a billion-dollar business from scratch, or achieved the seemingly impossible, and they’ll tell you the same thing… they did it a day at a time, step by step.
What steps you need to take today for Financial Independence?
Set your goals:
This step is the starting point of Financial planning. You should know what are your long term goals as well as your short term goal. Long term goal may include retirement planning and buying a house. Short term goals may include foreign/domestic vacation, buying a car, setting aside some money for higher education, etc.
Save before you spend.
Create a separate account where you can transfer stipulated saving amount on the first day of the month from your salary account.
Before starting investing fix these 3 things
Set aside 3 to 6 months expenses including EMIs as an emergency fund in liquid funds, bank FD or bank RD. Always keep it updated as your expenses increases. Consider Emergency fund as your expense, not your Investment.
Buy term insurance plan. with maximum cover possible till you retire or you have dependents. Buy disability rider and accident benefit raider of equal sum assured along with the term plan or separately.
Go for standalone (for you and spouse) or family floater health insurance plan as your base plan and buy a top up health plan apart from the one your employer provides. This arrangement will save your premium outgo.
Decide your saving rate and be firm in implementing it every month. One should invest at least 40% of his/her salary. According to your age and risk profile you can have an asset allocation of 80% equity and 20% debt if you are young or 60% equity and 40% debt if you are in the mid-40s.
Expenses can also be categorized as Needs and Wants.
But for a healthy financial life, one must understand how to segregate needs and wants. Learning and understanding the difference between Need and Want makes things simple. We can easily come to know where we spend unnecessarily. This exercise helps us to alter our spending pattern and ultimately increases our saving.
Make your monthly budget.
Once you have an idea of what you spend in a month, you can begin to organized your recorded expenses into a workable budget. The budget will help you to plan your spending and limit overspending.
Understand that wealth is a state of mind much more than a physical condition. To become wealthy you must first have a wealthy state of mind. “If you always think in abundance you will eventually have wealth but if you think always in scarcity you will remain poor”-Think and Grow Rich.
Never get into the debt trap.
Never get into the debt trap. Please never take any expensive loans to fulfill your aspiration. The debt will hamper your saving.Please never take any expensive loans to fulfill your aspiration. The debt will hamper your saving.If you don't have enough fundamental and technical knowledge of direct equity stock please refrain from investing in direct equity blindly. Instead, take the Mutual fund route. Systematic Investment Plan (SIP) is the best vehicle to invest in Mutual Funds. Map each SIP in equity or debt mutual fund for each short and long term goal. If you are new in the market start investing in Nifty ETFs, Index funds or balanced funds.
Create multiple streams of income.
NEVER rely on only one source of income. You must find ways to create income while you’re not even there.Tax planning needs to be done wisely. Try to invest 70% of 150000 in equity ELSS and remaining in PPF. Never invest for the sake of saving tax in unproductive financial products.Keep reviewing your portfolio once in a year and alter your asset allocation as per major changes in your life. Wealth creation is a long term phenomenon.Stick to your asset allocation for the long term. Don't panic about the short term volatility in equity markets. Stick to our SIP.
Last but not least, GRATITUDE.
You must be grateful in every state that you’re in. Always focus on what you do have not what you lack. Give back to others, whether through money, time, or service.On their own, none of these small, steady steps are life-changing. But together, thanks to the power of kaizen, they can change your life.Always remember Rome wasn’t built in a day. Same theory is applicable to wealth creation. Patience and disciplined always pays in the long run.