When you start earning, the dilemma of whether to work for someone else or to embark on something of your own keeps coming back on and off. With this come various thoughts of working hard and earning big money. But even if you haven't been through all that grind, you can still become wealthy by making some smart moves.
Although there are no set rules and formulas that work for one and all because everyone has a different financial situation on their hands, detailed below are a few smart tips that everyone could use to their advantage.
Reduce your risks
The first principle that all salaried individuals need to follow is to take steps to hedge their risks. Since salaried individuals have a fixed monthly income, they are prone to unannounced financial emergencies such as job loss, illness and debt.
So, as a rule, once you start earning, no matter how young you are or how low your income is, you should begin covering your risks. You can take appropriate financial steps like buying a health insurance policy to mitigate health-related risks. You can also create an emergency fund by putting your money in a recurring deposit to deal with a liquidity crunch in times of financial uncertainty.
Set yourself some goals
To be rich, make getting rich your goal and work towards it every month. Financial goals come in three varieties -- short-term, medium-term, and long-term. Setting goals allows you to choose the right investment instruments and allocate the necessary amount of money towards it.
If you’re at the start of your career, you may view long-term goals like buying a house as difficult challenges. But no matter your income is or how much you can save, keep saving and investing towards your goal, one small step at a time. As your income increases with passing time, so will the speed at which you’ll accelerate towards these goals.
Manage your expenses
Exercising frugality while you are earning is another step you can take to create wealth. Buy things that are necessary and cut down on discretionary expenses like eating out or shopping. Make sure you never borrow for discretionary expenses like eating out or going for a drink. Cut expenses that could be avoided, like one movie-streaming subscription too many. Set aside the money you wish to save at the start of the month, before you start spending on other things. Creating a budget helps prioritise expenses smartly.
Start early and enjoy the benefits of compounding
Wealth creation is a slow and long-term process that warrants patience. You must start early in your career to enjoy the benefits of your investment later in your life. A small investment early in your career has the potential to give you a bigger corpus in the longer run due to the effect of compounding. For best results, you must remain invested for a longer period of time and avoid the temptation of cashing out. It is also necessary to review your investment regularly and step it up with any increase in income.
Proactively manage your taxes and investment
If you manage your taxes proactively and smartly, you can save more of your income. Choose the right investments for your goals and get all your due tax benefits. Also choose investments that are tax-efficient, since you don’t want to be taxed heavily on your returns as well.
Getting wealthy means being consistent and disciplined over a long period of time.The writer is CEO of Bankbazaar