This post has been contributed by our guest contributor Mohit Arya with help from the Fintuned Editorial team. “Most people fail to realize that in life, it’s not how much money you make. It is how much money you keep,” writes Robert Kiyosaki in the personal-finance classic, “Rich Dad Poor Dad.”
On this note, I am glad to share my first post on how a salaried people should aim at creating wealth. Let me clear it first. Putting money in savings account giving you 4% or 6% return does not count as an INVESTMENT, at least a smart investment. The interest you get is too nominal to make your dreams come true.
To create wealth, one just needs to channelize the resources at the right place. Be more organised. Be more disciplined. That’s it!!
Let me give you an example – How a monthly salary of Rs 75,000 can be structured which can help you in meeting financial needs (both long term and short term)?
- Plan your monthly expenses: When you have a job and start making a lot of money, it’s easy to start spending money on the things that you want but you don’t really need. Unfortunately, spending money on big vacations or branded clothes won’t increase your wealth.
So, plan your expenses and set a budget – before the salary is credited. This process is going to take some time, but down the line you’ll be more thankful. Clothes are not wealth. Money is wealth. Don’t forget it. Let’s assume the monthly expenses to be around Rs 25,000.
- Set aside monthly emergency fund: Avoid letting unexpected expenses or events lead you to financial run. Build your emergency fund. Say, monthly Rs 10,000.
Now you are left with Rs 40,000 in hand to create money out of money. And trust me, this is not a small amount. So let me help you in channelize it
- Simply visit a bank (or it’s online too) and open a monthly recurring deposit account of at least Rs 10,000 for a period of 12 months. Make sure it is debited automatically from your salary account 2 to 3 days post your salary credit date.
Soon the year will pass by, and you will have a lump-sum amount at your disposal. This fund can be used to meet your short term needs like home renovation, wedding preparations or a vacation. If not needed, simply renew the recurring and reinvest the amount.
- Next, find out what your risk appetite is. In case you like to play safe, hit the bond market and choose from a variety of debt on the basis of growth and stability. In the current market scenario, the bond market is providing an approximate yield 7-8%. Choose dividend yielding funds so that you have minimal tax implication.
In case you are ready to take risk, the equity market is wide open. You can either invest directly or through mutual funds. (And I firmly believe mutual fund investments are VERY subjective). Equity will help your wealth grow if you pick up investment opportunities strategically. One can invest Rs 25,000 to 30,000 (the chunk left) in a proportion of 75:25 between equity & debt.
- One important thing I wish to highlight is that use your BONUS wisely in order to cover the amount required to be invested in tax saving instruments. This extra money should be used to get the deduction of Rs 1,50,000 U/S 80C. Apart from the employee’s share of PF, one needs to invest out of his own pocket to get the aforesaid deduction. Get a Public Provident Fund (PPF), considering it has decent return of 8.1% with no tax on interest. You may also go for Tax saver FD’s or ELSS or Life insurance considering your financial needs and long term horizon.
To summarize, make money out of money by investing and re-investing. All you need to do is – create a diversified portfolio and review your investments periodically. So, get up and get into action. The earlier you act, the larger you make in returns Cheers, Mohit Arya