Earning money and making the most of it are two different things. You must have seen two people working in the same firm but with a stark difference in their wealth. You must be wondering “How is this possible?”
In order to grow the money that is available to you in hand and before you embark on a journey to invest the same, there are some basic steps that you should follow.
Create a budget
This is the most important step to use your money wisely and make the most of it. This might sound boring but the end goal of preparing a budget is to ensure that you spend less than you earn and trace the unnecessary and avoidable expenses. This in turn will ensure that you do not overspend and save a portion of your income. Generally, you should save up to 10% to 20% of your income and invest it to earn returns.
Seema has chosen to bifurcate her expenses in three categories while preparing the monthly budget, namely:
- Fixed expenses: These should include all the expenses like insurance premiums, rents, debt repayments, instalments, childcare costs, etc. that are fixed in nature.
- Variable expenses: This should include all the expenses of all the utilities like electricity bill, medical costs, food, groceries etc. that vary across months.
- Discretionary expenses: All the expenses that are not very important and can be moulded as per the discretion. These include all the expenses meant for entertainment and recreational activities.
Preparing a mindful budget also ensures that you have enough money with you in case of an emergency. Soon, if Seema or any of her family members meets a medical emergency, she can utilise the money she had saved for discretionary expenses.
On the other hand, if she spends mindlessly without a plan, there is a high probability that she would overspend and might have no money to meet emergency demands.
Getting rid of the debt should be a priority
When you are in debt, you end up paying more than the original purchase price. The interest payments eat into one’s income that can ultimately halt and trap financial growth.
Your motive should be to eliminate all debts at the earliest or at least reduce it to bare minimum. Debts means to lose your hard-earned money before you could enjoy it.
Learn how Seema pays off her debts with a smart approach. She begins by paying off all of her smaller debts and reserves the leftover money as savings. She also plans her budget in a manner that she does not have to take on new debts. This results in saving enough to pay off her larger debts.
Make the most of your money and invest it
Investing money is the same as making money, it is the most sought after source for growing your money. It assists in formulating actual tangible wealth and converting it into income.
There are three major ways to do so:
- Investing in stocks: Even though the stock market can be a daunting place for newbies, it is an impressive medium to grow your money. The short term events might look like a jolt but stock markets can give impressive returns if you are patient and a long-term player.
- Investing in real estate: This is the most popular form of investment and is deemed to be safer than stock markets. The value of the real estate in the majority of cases will only appreciate with time. The only hurdle is the cost of maintaining the property.
- High-yielding savings account: Savings accounts are the best-suited option for those who are afraid of keeping up with stock markets. You should compare the interest rate being offered by different banks. Generally, online banks are considered to be the best because they eliminate all the overhead costs which enable them to offer great returns to the customers.
Take the rewards from credit cards seriously
Credit card bills are usually an ache to the customer and are best when they are as low as possible. However, you should read the terms of service and the rewards that come along, carefully.
Utilise cashback, gift cards, etc. in order to make the most of them. However, these are not advisable if you are already in debt as they can promote unhealthy expenditure.
Initiate dialogue with those who have a successful financial history
Financial advisors might give you advice and show directions but an individual who has been there and has built his/her own money can be of greater benefit. Listen to their story, identify what they did and at what turn in their life. Identify their short term and long term goals along with the steps taken to identify the same.
Take a close glimpse at their investment strategies and the retirement plan that they undertook. An impressive and effective retirement plan is a great medium to grow your money as well as protect your future. Learn how the individual prepared his/her budget and the proportion of the income saved by them
Financial discipline is a must to bring about stability and growth. An everyday small instance that can be a stepping stone can be the time of your credit card bill payment. You should never pay it too early nor too late. While paying it late will lead to a fine, paying it early will evade the interest rate benefits.
To sum up
Growing money is indeed very important and useful, it gives you a cushion to protect yourself and your family in times of financial emergency. Additionally, it also enhances the standard of living and deducts the probability of unnecessary expenditure.
It is important to note that keeping an excess amount of money in the bank increases the chance of higher expenses which are not important. You should take to investing that money to yield higher returns.