7 Jan 2014

Create Wealth

 I have always been interested in personal finance. As a child, my father gave me pocket money just to see if I could make a budget and account for all the expenses. I owe my father my sense of savings, budgeting, investments and also the feeling of contentment.
I always tried to find out what other people were doing with their finances and logically deduce the right path for each and everyone. Each individual is different, their tastes are different and the financial paths we choose may be different. However, there are things that are common to all of us. We can all be financially independent and we can all create wealth. Here is how :
1. Spend less than you earn
Regardless of how much or how little you earn, spend less than you make. Debt is an evil virus that can multiply very quickly if not treated at the right time. Prevention is better than cure and thus avoiding bad debt like credit card debt is the best path to take. If  you use a credit card, please pay it off on time. If a loan is needed e.g. housing loan or education loan, please be diligent about paying it off. Evaluate the pay off and be aggressive about paying it off.
2. Save as much as you can
 If you are single or the sole earning member in your family, save fifty percent of your income. I know ! This sounds extremely difficult. My point is, save as much as you can. If you are married and are both working, live on the lower salary and save the higher one.
3. Simplify Your Life
I really wanted to title this point as "downgrade your life" but thought it would sound too harsh and thus chose "simplify your life". What I mean by this is simple - our lives create a feeling of need when we do not really need things. Do I need a fancy touch screen phone?  Do I need a car ? Do I need a very big house etc. ? I look up to people who do not have a fancy phone. Yes, they can afford one but  do not have to buy it just because they can afford it. I know people who work in IT and still have an old phone where all you can do is make a phone call and send a message. It is certainly not a touch screen phone. It is a very "unsmart" phone but works well for their needs. The simplicity of the phone saves money. They do not need data and do not have a post paid plan. This applies to many areas of life.
4. Carry Your Lunch To Work
Not only is homemade food the healthiest, it is also the most economical.Let us assume that you eat at your office cafeteria everyday and it costs Rs.35 a day. This amounts to Rs.805 every month, assuming you work 23 days a month. If you save Rs.800 every month, by the end of the year you would have saved Rs.9660. This money can be set aside in a fixed deposit which will earn interest @ 9% or 10% per annum. Rs.9660 @ 9 % interest rate compounded quarterly will be Rs.10,558 at the end of one year, Rs.11,509 at the end of second year, Rs,12,579 at the end of third year, Rs.13,749 at the end of fourth year, Rs.15,028 at the end of fifth year and so on and so forth.
5. Create Wealth
Creating wealth is about having more than you need. If we live frugally, think before we spend , save some of our income and invest in different ventures we can all amass wealth.

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