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Friday, March 31, 2017

How to Save your way to greater Wealth

Why do people invest their savings? That's a simple question, and should have a simple answer - like "For a rainy day." Turns out, it doesn't.

Just ask around. You will hear answers ranging from "To get rich", "To retire early", "To travel the world", "To buy an apartment", "To buy a BMW", and so on. The answer that makes most sense is: "To build wealth." 

It goes without saying that wealth building requires a meaningful amount of savings every month, which in turn requires adequate earnings. 

If someone is earning only Rs 15000 per month then he will barely be scraping through, and won't be able to save much. What will he do then?

Find ways and means of increasing his earnings. Acquire some new skills. Start a home-based business, or take up a second (part-time) job. It will be tough, but not impossible.

If someone is already earning a decent amount of money, life becomes a lot easier. Or, does it? Often spending tends to increase in proportion to earnings.

Priority is given to better furniture, a bigger TV, a foreign holiday. Whatever savings are left get invested in ELSS funds at the end of the year.

Wealth building requires availing the full power of compounding. That means starting early, having a financial plan, and staying true to the plan for the long-term.

Haphazard buying of mutual funds, stocks, fixed income instruments, insurance policies will provide inadequate returns, even if earnings and savings are substantial.

Check out the advertising in print, online or TV media. They are all screaming 'buy', 'buy', 'buy more'. Consuming may be good for the economy. But buying clothes and jewellery and gadgets won't help you to build wealth.

Having discipline and self-control to buy only what you absolutely need - except for the occasional indulgence in a movie or dining out - can help you to meet your financial goals and enable you to retire in comfort.

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