Making your money work for you is using your money to generate more of it. While this may appear to be a contradiction, there are a variety of financial considerations that can assist you in accomplishing this. There is no one-size-fits-all approach to wealth accumulation. It all comes down to how well you invest your money. To double your hard-earned money, you must exercise caution, consider your options, and select financial instruments that will provide steady long-term returns even during periods of high inflation.
Hence to create this we will find a two pronged approach :
Before embarking on a journey to save, grow and invest your money, there are certain steps that must be followed to lay the groundwork.
As dull as it may sound, creating and sticking to a monthly expense plan is key to making your money grow. It not only helps to determine where you are spending your income but also helps you to change the way you manage your money. The ultimate goal is to spend less than you earn and keep track of where unnecessary expenditure is being made. Budgeting isn’t a one-time action; it is a continuous process of engaging with your expenditure habits every day. It involves:
Debt curtails the choices one can make towards savings and investment and it is therefore best to eliminate it all together. Having debt means to be stuck in a vicious cycle of earning and losing money even before you have had a chance to enjoy it. This is easier said than done, for those who are feeling stuck and unable to achieve this, the trick is:
You will find most adults making a common complaint that “ I hope tax planning was taught in school”. Most of us ,when we start earning are lost when it comes to planning our taxable incomes. We are unclear about documenting expenditure and saving on essential items and how tax credit works. Basically, If you are charged more tax than you are actually liable to pay then the excess amount is made available as a tax credit. This credit can later on be adjusted against any future tax liabilities, i.e. the credit is entirely deductible from the amount of tax you have to pay, and this is regardless of the tax bracket you fall into.
Investing money is akin to making it, it is a long-term strategy for building actual tangible wealth that can be utilised as income later on.
The stock market can be a daunting place for novice investors, but with a little amount of effort, the risks are worth the reward. Stocks essentially represent legal ownership in a company, when you invest in a stock, you automatically become a part-owner of the company. Investing in stocks can be an efficient way to build wealth gradually over the years.
One of the easier ways to make a foray into the stock market is by investing in mutual funds or index funds. These investments are like a group of diverse stocks and other holdings that appreciate over time. Mutual funds are the better options for first-time investors to generate income as they require very little effort and planning to get started.
Not all costs can be predicted, but the ones that can't be avoided can put a serious dent in our finances if we don't account for them. Having emergency money set aside is crucial in the event of such costs. An emergency fund should be equal to at least two months of living expenses, as a general guideline. Also, make sure the instrument is highly liquid and has nearly no exit burden. Be cautious in your selection of these instruments and prioritise their liquidities over their expected returns.
Your investment options will vary greatly depending on what you hope to achieve. Although it is important to put money aside to cover unexpected costs, long-term wealth creation should always be the priority. Therefore, when you first begin investing, aim for a horizon of at least five years. Instruments with long-term benefits but a mandatory holding time will also be factored into your tax planning. In addition, these investments will provide substantial profits.
The most important thing to remember while investing in stocks is that it is a long-term process. Don’t be jolted by short term volatile events like this pandemic and withdraw your money because markets are resilient and your patience will pay off in the long run. Keep liquidity very tight. Obviously, it is important to account for emergencies such as hospitalization etc. but otherwise, keeping excess money in the bank means there is always a chance of you spending it. It is ideal to never spend on unnecessary items, especially if they will not appreciate in value over time.
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