In the financial world, the compound interest works for those people who start saving early as their 20s. Wealth creation is a complex process, but taking the right steps will help you go the distance. By understanding the financial jargons and tools, a financial plan can be developed with a mix of debt, equity savings, real estate, and gold.
- Early bird catches the worm
We have been taught the whole life to save money to grow rich and multiply the investment over time. On the contrary, building wealth from scratch is unachievable. We should start saving early so that the savings will have a long way to grow. A steady stream of savings should be invested periodically and keep the expenditure as low as possible along with building secondary sources of income. By investing in our early ages, you can reap the benefit of compounding, which is a well-proven strategy to get rich. In simple terms, it‚Äôs a miracle that can turn small savings into a major fortune over time.
- Invest time and knowledge
It is crucial to invest time and knowledge in understanding the financial products in order to diversify the portfolio early in life. Exposure to savings, budgeting, expenditure can lead to a financially secure future. According to multiple media sources, three-fourths of the population in India do not understand the basic financial concepts that eventually leads to poor investment decision making. Understanding the basic financial concepts, especially for the millennials who have just started their career and entered the corporate world. While informed decision making can lead to the growth of capital in the long term, but wrong decision can hamper the financial growth or success. We should two-three hours to develop our knowledge that will go a long way in building wealth.
- Fix goals
Millennials, today take more loans as the income rises. Money, if not managed well can hamper your financial success. Real Estate is the most preferred option taken by millennials and most of the monies goes into buying their dream home. While buying a home is emotional and aspirational, it will take a deep cut in their finances at the retirement age. You can lay out specific saving goals that can curb temptations of taking extra credit. Additionally, realistic goals should be defined and revisit time to time. You can also opt for SIP to save for the long-term and a tested method for long-term wealth creation. A goal-based SIP will help you identify how much to invest in an asset class (debt and equity).
- EPF or NPS
On top of the EPF received from the employer on monthly basis, you can also opt for National Pension System (NPS) to generate better returns as compared to fixed deposits, RD, etc., but can be liquidated only at 60 years of age.
- Stocks or Mutual Funds
Mutual funds are a better route to generate double-digit returns and are the only asset class that can beat inflation in the long term. The equity route might be volatile in the short term, but returns generated by the asset and the power of compounding is the best way to achieve inflation-adjusted returns over a long period of time.