How many times have you watched interviews by millionaires on the web and wished you could be just like them? It may seem difficult to earn your first million; however, creating the next million on your initial capital base. However, the relevant question remains, “How do we earn our first million?”. Surely, depositing money in traditional bank deposits will not help considering the meagre interest rates they offer and the effect of taxation.
Government-sponsored schemes like the Public Provident Fund (PPF) require one to stay invested for a minimum of 15 years, which means that you must wait for 15 years to check how much money you have accumulated. Besides, you cannot take out the money in between to invest in some better investment opportunity promising better yields. This brings us back to the need for learning simple strategies that may be used to better utilize our finances.
Without proper financial planning, it is not only difficult to manage money but far more arduous to become a millionaire. This is mainly because many people tend to incur debt like a home loan or a vehicle loan or credit card debt early in their lives, thus, leaving them with very little money to save or invest. The greed to turn into a millionaire overnight has also caused many people to over-invest, thus, leaving them with very little emergency funds.
If you decide to embark on your financial journey to becoming a millionaire this year, you must follow the following steps.
Have a financial goal in mind
Which is more important – the journey or the goal? The answer is that you must take care of both though you cannot enjoy your financial journey unless you define your financial goals. Financial planning takes a backseat if you do not know how much money you want to accumulate and why you want that much amount in the first place. So, your financial goals can be myriad ranging from short-term goals like buying a car or saving for a vacation or paying for a new electronic gadget or long-term goals such as buying a house or saving for your children’s higher education or their marriage, etc.
Apart, you must set realistic goals for yourself. Investing a mere ₹1000 every month will not turn you into a millionaire overnight. This implies the need to make adequate investments for enough returns. Apart, you must aim to invest persistently without which you would not experience the magic of compounding that turns small investments into an enviable corpus over a period. Where you invest also matters, which is why you must invest according to your money goals, risk appetite and understanding of finance.
Once you know why and how much money you want and your intended investment horizon, you must focus on creating a budget that lays out how these objectives will be met and by when. You can then proceed to plan your budget by segregating your earnings into savings, investments and expenses. Ensure that you do not go overboard with your investments. Be consistent and wait for opportunities but do not bite off more than you can chew.
List your priorities while you decide your financial goals. Financial goals when broken down into smaller and more manageable chunks can provide tangible evidence of progress, boost morale, and motivate even greater efforts toward future successes.
Track your money movement
When was the last time you indulged in impulsive shopping? How much money do you have in your savings account? Have you allocated some part of your earnings to traditional bank deposits? What percentage of your earnings do you spend on essential commodities? Do you manage your finances well? Money management is an art that you can master only with the science of an organized approach. One way to best manage your money is to keep a track of how much money comes in and how much of it goes out. You may not record every penny that you spend but you must be aware of how money leaves your accounts and why.
Also, do you have access to passive income too? Which income do you spend on your bills while you save and invest the rest? This kind of organized approach will not only help you avoid overspending on purchases but will also lend you insight into areas where you can make better financial decisions in the future.
Your current source of income may not be enough to save and invest. Instead, look for added options to earn more money. You may consider getting a second job, trying your hand at freelancing, learning a new skill to increase your earnings potential or at best asking for a pay raise from your employer company.
To start with, you can track your income and expenses on an excel sheet or download online apps wherein you can record your daily expenses while adding the money that you earn through regular and sporadic income sources.
Decide your investments
What do you know about money? Do you realize how money grows only when it is invested in the right instruments? You may be averse to risk, thus, refraining from investing in the stock market. If you are new to equities, you may seek professional advice who will tell you where to invest and how long to stay invested. Alternatively, you may park your earnings in mutual funds that invest in a basket of securities, thus, making you less susceptible to risk.
You may consider debt funds that invest in bonds, government securities (G-Secs) and other corporate deposits. The earnings may not be too great but you can gain from the indexation benefit. Traditional investments like the Public Provident Fund (PPF) can also help, though you must be ready to stay invested for a minimum of 15 years.
If you are looking to grow your money, you must first unlearn your misnomers on finance and brace yourself to learn how it is the compounding effect that ultimately helps you to grow your money. The compounding effect is however possible only when you give enough time for your investments to grow, which means that you must be willing to stay invested for around 15-20 years to meet your long-term financial goals while the debt fund investments would serve you best to meet your medium-term goals. Bank deposits will do you a lot of good if you have short-term financial goals. This way you can decide your investments depending on your financial goals while also ensuring that you do not mess with any of them untimely.
Be disciplined with your investments
Security is synonymous with discipline, which is why you must ensure that you are disciplined with your investments. It is like making daily running a practice to win a marathon. First, take stock of your current financial situation and then decide the frequency of your investments. Have a budget in place that includes all your income and expenses so that you can decide how much money you wish to invest every month. If your earnings fall short of your expectations and disable you from making necessary investments, it would be worthwhile if you focus on an added income source too.
Track your investments, no matter how small or insignificant they seem, and stay abreast of any changes or new developments in the global economy. Beware of macro factors that may affect your investment strategy. It is critical to be cautious and disciplined in all financial matters, irrespective of how small the investment may be.
Insure to ensure your future
Have you realized how much money gets spent on healthcare expenses each year? It is best to save your earnings from being spent on hospitalization and subsequent medical care treatment. First, have a health insurance policy in hand to save yourself from the harassment of having to lose your savings on such expenses.
Apart, not all medical expenses are covered under a health plan, which is why you must have enough money in hand to pay for such sudden and unforeseen expenses. Also, having a liquid cash reserve prevents you from having to take out loans or resort to credit card debt to cover unexpected expenses.
To ease yourself from an unwanted financial crisis, you must plan an emergency fund. First decide, what qualifies as an emergency expense before you decide how much funds to put into it. It will be easier to save the necessary funds and gain peace of mind in the event of a financial emergency if you have a plan in place.
Not everyone looks at finances similarly. This is why one financial plan does not suit everyone’s needs. “To each, his own” is the much-acclaimed adage that underlines everyone’s financial journey. Each one of us has a unique financial journey. However, there are some common denominators when it comes to achieving financial independence. It’s a must that you define your goals, track your progress, make a budget, and invest in yourself. If done religiously, you will find yourself on your way to a financially secure and prosperous future.
All said and done, pay attention to your job or business or whatever you are doing. You first need to earn and invest your earnings to earn your first million. Building further millions then becomes easy. Maintain your focus and don’t let unexpected costs and events derail you.