In financial planning, wealth creation is always an end result. But there are many small steps involved in bringing the desired fruit. You might think, why I am elaborating on this topic now?
In recent times, one of my relatives undergone a health emergency. It was an acute issue and was forced to spend all their liquid assets and gold they had.
This is seen in more than 75% of the families. People fail to purchase health insurance or purchase with low coverage.
Let us come back to our topic with this small background.
So, why we work or why we invest?
The answer is so simple, just to create our wealth or assets. But, planning assets building without any safety measures will be like driving a car from Kanyakumari to Jammu & Kashmir without a brake.
In the same way, people are trying to build their assets alone and don’t care about their family’s safety.
What is safety?
As we inform our reader from our 1st article on Fundamentals to do before financial planning. Fundamental safety is more important, which are
- Term Insurance.
- Health Insurance
- Emergency Funds
- Clearing all the debts.
Once, we are ready with our safety fundamentals, we are ready for investments or savings.
Note: Until you make sure your family’s safety in terms of monetary, please don’t focus on building assets.
Now, let us take you all through how you should work on financial planning towards wealth creation.
Step 1: Plan your Goals:
Goals, as always been the fuel for all giants who have achieved their financial freedom. The word states ‘Plan”, it should have a “Goal”. In our earlier articles, we have given even weightage for goal-based investments.
In the wealth creation journey, Goal-based investing will give an understanding of,
- Why you invest. What is the expected end result?
- How much you should invest every month?
- What will be the tenure you are planning?
- How can you build your asset allocation?
So, you should be clear about your goals with the time frame.
Step 2 – Save as much as you can:
Savings is the biggest step in life to build assets. Without proper savings, you can’t achieve anything financially.
People and prospects would have taught you to save 20% or 30% of your income every month. But, it is not going to be certain anymore. You have to concentrate on saving as the maximum you can in a month. Why we are saying this?
- Few people can’t save 20% of their income due to limited income or commitments. So, they quit saving as it becomes a tougher job
- In the second case, people will be having the ability to save more than 30% of their income. Seeing the advice of 20% to savings will make them reserved.
This is the reason, why we say save as much as you can (Maximum). To save maximum, you should do a few things in life,
- Try to live by your mean.
- Avoid debt traps.
- Don’t spent or live to please others.
- Avoid being Spendaholic.
- Stay out of Offers.
Step 3 – Invest with Patience:
Until you decide the investment choices you can spend a lot of time analyzing. Maybe picking a stock, mutual fund, debt bonds, or fixed-income materials. But, once you have decided, you should be more patience till you achieve your goal.
Both Investments or savings are having the same meaning. In the initial phase of investing our savings, we will be more motivated and will be waiting for the salary to invest on Day 1 of the month.
As times move on or when you miss out on the expected return. You start researching other investment materials to make the return as expected.
For example, We have seen people tend to invest in mutual funds that have performed well in the year. After a year of their investment, the fund might fall. In this situation, they shift our focus on other funds which has performed. The net result is they have lost our patience.
In every investment, there will be a fall and rise. As long as you do our job with patience, you can achieve the desired result.
So, patience will be the key to success in financial planning.
Step 4 – Let Compounding work for you:
The foremost thing you should learn is the compounding effect. Investors fail in the journey of wealth creation in financial planning is by not understanding the power of compounding.
In our article on a review of Pidilite Industries share, we have highlighted the benefit of long term investment. If you have invested Rs. 10000 in Pidilite shares in 1999, the current wealth will be Rs. 10 Crores. In the last 21 years, the investment has grown almost 10030 times.
This is the power of compounding. When you give enough time to your investments, your assets grow more potentially.
- Understand the power of compounding.
- Invest with Discipline, and consistent.
- Don’t let your impatience to eat your wealth