Building Wealth? This Checklist will Guide You

Building wealth is not just an aspiration of a few but a need for most of the people. At every stage of life, a person will find himself/herself coroneted with financial responsibilities of varying magnitudes. From paying loan dues on your education to set up an investment plan for when you have kids after the marriage, each stage demands you to be financially secure.

Considering the tough economy and growing competition, acquiring assets and adding to your bank balance becomes even tough. Thus, different people employ different wealth-building strategies as per their circumstances, income and ability.

This post is not just about some clichéd savings plan or a mere collection of investment planning tips. Rather, this post is a complete checklist, a ‘financial cheat sheet’ if you may, for your reference.

Let us dive right in! 

Set Budget & Track Expenses

This point focuses majorly on the millennials because of their wildly different spending habits than the ‘baby boomers.’ While our elder generation was thought to be more responsible when it came to budgeting and keeping expenses under regulation, the present generation believes in YOLO philosophy (You Only Live Once). However, millennials must understand that setting a budget can set their finances straight on the path of growth. Budgeting is more than just ‘knowing the amount of paycheck and the monthly bills.’ It is about prioritizing spends, and still, cutting-out a margin for savings to meet other goals.

Tracking Expenses can be considered as the step before setting up a budget. And, this shall not come hard for you as there are numerous Smartphone apps and free software that will allow you to do so. Once you follow this point religiously, you’ll be able to figure out your Savings & Investment capacity required for building the target wealth.

Build an Emergency Fund

When you set out to pursue long-term goals, you will have to account for any probable mishap or any risk that will hinder your progress. Long-term wealth-building is just like a long road-trip where things can go wrong. If you don’t have the right repair tools or a spare wheel (emergency fund), the road-trip is for sure wrecked! So, an emergency fund must be your next priority while accumulating wealth.  

The purpose of an emergency fund is to save a person from falling into the ‘debt trap’ in case a dire need for cash arises. Scenarios may include but are not limited to job lay-off, availing crucial medical services not covered in insurance, costly vehicle repairs, etc. Experts advise that a salaried individual must save 3 months (6 months preferable) worth of the current monthly expenses. In case an unfortunate event strikes you, your wealth-building goal will not be set back by debt.

Clear Your Debt!

This pointer comes without saying. The more you owe to the world, the slower will be your wealth-building rate. The most straightforward strategy to tackle this is to clear your debt as soon as possible without burdening yourself too much. To do so, keep the following tips in mind;

• Use only one or two credit cards.
• Pay-off your credit card dues completely and keep them for emergencies only
• If you have recurring EMIs, then try to pre-pay or pre-close the loan.
• Try not to take any additional loan to keep your liabilities to a minimum.
• Cut-off any unnecessary expense from your monthly spends to better manage the liabilities.  

Begin Investing

If you are a salaried person, you must begin investing once you have achieved the above-mentioned milestones. Wealth building begins with managing the personal finances first and then making wise investments to achieve your target. This is the time you can invest in a suitable Savings Plan, a systematic investment plan, etc. as per your risk appetite. However, keep these tips in mind before you start investing in a suitable scheme;

• Select a curated plan for your financial goal. For example, if you are preparing for retirement, then invest in a Retirement Savings scheme. Similarly, do so for child education, etc.
• Do the basic math to know if your investments will beat the ‘Inflation rate.’ For example, the cost of living which is ‘X’ today might be ‘2X’ after a decade.
• Note that the amount you invest in these schemes will often not be ‘liquid.’ Thus, you won’t be able to use that money without incurring a heavy penalty which would ultimately defeat the purpose of investing.
• Do not invest your ‘Emergency Fund’ into such schemes however tempting it may look. Keep it reserved for emergencies only!

At last, keep this checklist handy. Whenever you think you need to realign your finances, refer to this post and you’ll be good to go. Till then, keep building wealth and stay awesome!