Seven Pillars of 2nd Source of Income

Everyone has two sources of income, one from salary/buss other from investment. More you save more your income will increase. More you become financially stable. Investment and protection lead towards Financial Independence.

Financial Independence means having a perpetual inflow of money to maintain, even improve, your lifestyle without having to worry about the next pay cheque. Everyone dreams of having the financial independence but only a few actually achieve it.

Whole life we work hard to take care of basic day to day needs, as we keep moving ahead in life, responsibilities keep getting added.

Our mind keeps talking and doing calculation (virtual calculation) how much money I have as of now, how much loan I have, if I get bonus this year, I will close one loan. We all talk a lot on money matter, do virtual planning and virtual calculation many a times.

We mankind put our energy, effort and determination to earn better livelihood. So that we can give better life to our loved ones. And our mind keeps looking to get best answer/solution for two big questions which most of us have

1. Where to put saving to get better returns to achieve goals
2. Best education and career option for child

?In this article, let’s dissect and simplify the steps to be financially independent.Remember your age or economic status doesn’t matter. You can start now; wherever you are.

?Seven Pillars of 2nd Source of Income: -

Dreams, Earning, Saving, Protection, Investment, Expenditure & Discipline

Every person dreams of a good and luxurious life.?But the question is, what is the correct time of starting to dream? The earlier you start dreaming about your goals the better it is. Ideally, one must set his life goals from the very beginning of his career. But nevertheless, as it is said, "You are never too old to set another goal or to dream a new dream."?

Now, the next question arises are you dreaming right?

Dreaming right is very important facet of what kind of future you want for yourself.

You must set life goals for each and every aspect of your life, be it,

1.????House

2.????Vehicle

3.????Marriage?

4.????kids’ education

5.????Kids marriage

6.????Traveling

7.????Pursuing your hobbies and passion?

8.????Savings

9.????Investments

10. Retirement plan

11. Philanthropic activities (social, religious, environmental)?

12. Mediclaim / health

13. Life insurance

It is easy to plan when your goals are clear to you. Also, a clear vision of, what thing you want at what bracket of your age is also crucial for the investment planning. Often, we waste quite a few starting years of our career with our carefree attitude towards life. We realize the importance of investing, mostly, after we cross our 30s or sometimes 40s.

While Income and Savings are pretty much straightforward to understand, there are a few things to remember. They are long-term practices. They require rigorous discipline- which we will talk about later- and consistency. Whatever your means of having an Income are; always try to increase it incrementally. Higher income leads to more savings. This also requires refraining from frequent splurges on unnecessary activities or products. Saving is a habit. It leads to big rewards later in life.

The only drawback is that depending only on savings will rarely bring financial independence in your 40s and 50s.

This is where the other parts of the mantra come into action.

Protection:

Unforeseen events such as the current Covid-19 pandemic, acts of God, burglary, accidents or life-threatening ailments can wreak havoc to our finances. Like an earthquake, they destroy everything we’ve created and we never know when they’ll strike us.

Life Insurance, Health Insurance and Property Insurance are effective tools to deal with sudden challenges that life might throw at us. These products are in the realm of common knowledge and they are not that complicated to understand. It’s you who has to decide how much of an insurance cover you need, so plan accordingly and never buy it only to appease a friend who is pushing it onto you.

Remember, protection comes first (even before savings) while charting a course to financial independence. An environment free of fear and uncertainty is required to move ahead.

Investment:

There are many form of investment and each offer multitudes of products to choose from.?The three major streams of investment are Equity, Debt and Commodities such as Gold.

Equity is long-term wealth creation; though there maybe instant gains too. Direct equity, ETFs, Mutual Funds, SIPs, PMS and AIF are some of the common options you can choose from.

Even small increase in saving of Rs 2000 per month can help you to build corpus 10 lac, by doing equity SIP for 15 yrs (assuming 12% CAGR return). If you manage to cut expense by 10k and start Equity SIP for 20 yrs you will build corpus of close to 1cr (assuming 12% CAGR return).

Debt investments helpful to fulfil short-term goals. They offer great liquidity and consistent returns. FD, Liquid MF , Tradable corporate NCD, Tradable RITES, Bharat Bond ETF are few of the good options to invest.

Gold and other commodities are preferred for asset diversification. More diversification means more scope to absorb temporary market-shocks. Plus, having different products working to generate wealth is always a good idea.

For a novice, investment may seem like a risky idea as it is dependent on the market but the truth is with proper planning and patience, investment always pays off. You just have to acclimatise to the idea and the process.

Discipline:

This is a big one and everything depends on it.?When you make a decision, stick to it- month after month and year after year.

If you want to save 30% of your income; do it first and then plan your expenditure accordingly. If you want to invest on equity, research continuously and invest regularly. Commit. Have a realistic idea of what you want to achieve and never stop reaching there.

This requires certain sacrifices as all good things in life do. You probably won’t buy that high-end smart phone for another month or postpone that trip to Europe. That’s okay. Also, don’t get swayed by other’s opinions or market fluctuations. Don’t give in to panic or mood-swings.

Whenever in doubt, always remember why you are doing it.

How to do it:

1. Define your targets. Be clear on what you want to achieve; including major life-events and luxuries. Don’t let your life experiences so far restrict your thinking. Imagine a perfect life and define your targets to meet it. Include the future of your spouse, children and family. Include charity, your interests, hobbies and passions in the mix too because these are the things that give inner satisfaction. Never forget to adjust for contingencies, inflation and taxes. Review annually and make corrections if needed.
2. Find your perfect advisor. A person who works with you realising your goals is a blessing. Advisors help you see the bigger picture, make plans and keep you grounded. Be choosy while selecting your advisor but choose one.
3. Plan. Think of ways to increase your income while reducing the expenses. Try to pay off any debt you might have. Create a precise portfolio with enough diversification. Think long-term.
4. Stick to the plan. As we’ve already discussed, be disciplined and committed.
5. Be active and informative. Investment of time is as important as the investment of money. Read, question and discuss what is happening in the financial world with your advisor and family. Knowledge leads to smart decisions.
6. Be realistic. Never get enamoured by flash and bling. Having a 50-ft yatch, private planes, strolling on a private beach with martini in hand; these should never be you goals while starting on the path of financial independence. These things come later.
7. Develop healthy habits.?Always try to keep moving ahead. Scrutinise every decision with reason, logic and needs. And of course, refrain from unnecessary distractions and temptations.

Financial independence is for everyone and everyone can achieve it. Follow the seven-pronged mantra and you will have it too.

Happy Investing. Your Happiness = Your use of Money + Your Values

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