Wealth creation is not a one-time activity, it is a process which requires your time and patience. For accumulating wealth over time, you need to – make money, save, invest and understand where and why you are investing. To create wealth, some basic rules should be kept in mind, that are simple to follow.
Systematize investing: Being busy individuals, the last thing on our minds is handling paperwork, cheques, banking errands, etc. Hence, there is a need to systematize: Automate investments to selected avenues on monthly, quarterly, yearly basis by using technology, available systematic investment plans (SIPs), triggers, alerts, ECS, etc.
Diversify: The key to intelligent investing is diversification. Diversification across asset classes and within each asset class can reduce the overall risk to the portfolio. However, overdoing diversification can lead to a highly fragmented portfolio. Diversification beyond the optimum level does not reduce the risk to the portfolio.
Safety has a price: If you are one of those risk-averse investors, chances are that your savings would be locked into various fixed and recurring deposits. Rising inflation can impact your long-term financial goals if you invest predominantly in fixed-income assets. In other words, the interest income from deposits would not help you keep pace with rising costs of goods. That also amounts to erosion of capital -you have lost it through inflation. So, remember to build an inflation-beating corpus through investment across asset classes including equities, debt, gold and real estate.
Consistency & discipline pay: Be disciplined to invest a certain amount every month and systematize it. There are many examples of SIPs in diversified equity mutual fund schemes generating sizable corpuses, where investors have consistently run SIPs. Also, discipline yourself to refrain from going off an agreed asset allocation and investment strategy.
Save on taxes to build a kitty: A large number of people focus on expenses like children’s education, home loan repayment, etc., for tax deductions from their salary. You should look into Section 80C investment options seriously. Here you can find investment options that can save on taxes and also build a long-term portfolio with good future returns. These options include equity-linked savings schemes (ELSS), various provident funds, NSCs, five-year tax-saving deposits, etc. ELSS could offer you the best deal in terms of superior tax benefits and higher returns in the long term.
Monitor and review: After you have put in place an investment strategy and implemented it, periodically check if the plan is working for you from every possible angle. If you have moved away from the agreed plan, change the asset mix. If that means exiting under-performing investments, do that.
Mind your credit score: Like in business, in personal finance too credit line availability plays a critical role. Institutions consider both borrowers’ income profile as well as their repayment behavior across earlier liabilities, while deciding their creditworthiness. The credit score of an individual is an integral part of banks’ appraisal process in determining whether to grant credit as well as its quantum. The higher your score, the better your creditworthiness and more are the chances of your loan application getting approved. Financial discipline in paying back the borrowed amount (EMIs) on time and as agreed to the lender is the foremost step to ensure a good credit score. It is important to monitor your joint loans or loans where you are the guarantor. Also, review your credit report at regular intervals. In case of any error, get it corrected without delay.
Seek professional help: We are ready to seek help from dieticians, doctors, lawyers, etc. Likewise, we also might need professional help to nudge us into an investing habit and ensure our financial well-being.
Credit Triangle is a one-stop solution for all your credit and finance needs. We help you to create wealth management, repair, and improvement.