How to get rich: Financial awareness is the ability to understand and effectively use various financial skills such as budgeting, retirement planning, debt management, tracking personal expenses, etc. Besides being aware, it is very important for everyone to become financially independent. The earlier you start, the higher your chances of accumulating huge wealth and becoming wealthy.
Many of you are already working on managing your finances, but it's not an easy task. Sometimes you're not sure if you're making the right decisions and choosing the right tools to help you reach your financial goals. Here are some tips for investors that you should start putting into practice today.
10 tips to help investors get rich
1) If you're a stock investor, don't try to time the market.
Market timing is the act of predicting the future movement of the stock market and taking investment decisions based on that prediction. Siddharth Maurya, resource specialist at Expertise Real-Estate and Fund Management, says market timing can be a risky strategy for equity investors.
He added that rather than trying to time the market, investors would be better off creating a long-term investment strategy based on their financial goals, risk tolerance and investment time horizon.
2) Diversified Portfolio
Consider having a well-diversified portfolio with stocks, real estate, gold and silver. Gold has a low correlation with stocks so acts as a hedge against a standard “equity-debt portfolio”.
“Maintain a long-term investment horizon and avoid taking impulsive decisions based on short-term market fluctuations and emotions. It is important to regularly review and rebalance your portfolio based on your investment objectives and risk tolerance,” said Siddharth Maurya.
3) Emergency Fund
An emergency fund or contingency fund is an essential part of your overall finances. The purpose of an emergency fund is to provide a strong cushion to your finances in case of a crisis. This helps you deal with any financial emergency without disrupting investments that are primarily set aside for long-term needs. Every household should have an emergency fund set aside as per their monthly essential expenses. Such a fund can be very helpful in case of health-related contingencies even if you have insurance.
Liquid funds invest in short-term instruments such as Treasury bills, commercial papers and certificates of deposit. The returns earned by these funds are often higher than traditional savings accounts and fixed deposits. Maurya said in case of an emergency, one can easily withdraw or redeem their investments from liquid funds and the amount will be credited to their bank account within a few hours.
4) Guaranteed return options within the portfolio
Every investment we make should not be focused only on returns. While the objective of investing in equity should be growth and higher returns, fixed income investment should focus on stability, avoidance of downside risks, safety and liquidity. Invest in fixed income investment options like Public Savings Fund (PPF), Bank Fixed Deposits (FDs), Senior Citizens Savings Scheme (SCSS), Post Office National Savings Monthly Income Account (POMIS), National Savings Certificates (NSC), Sukanya Samriddhi and other fixed income investment options.
According to Siddharth Maurya, adding solid return options along with other investments in a diversified portfolio balances risk and return and helps investors achieve their financial goals.
5) Invest as much as possible in EPF
The Employees' Provident Fund (EPF) is a retirement savings programme administered by the Government of India. It offers a guaranteed return guaranteed by the Government of India, making it an excellent investment opportunity for working individuals. The EPF scheme is administered by the Employees' Provident Fund Organisation (EPFO), a statutory body under the Ministry of Labour and Employment.
With government backing and guaranteed returns, it offers a safe and reliable way to save for retirement. So, start investing as much as you can in EPF to ensure your future is secure, says Maurya.
6) Plan for your family when you're gone – life and term insurance
Life insurance, and term life insurance in particular, is necessary for everyone given the uncertain times we live in. With life insurance, you can ensure your family's financial future when you're gone.
“Having adequate life and term insurance is essential to meet the financial needs of your family when you are gone. Speak to a financial advisor and choose the best policy that suits your family's needs,” Maurya adds.
Redefining your attitude towards money is not enough to change your financial habits, you need to be prepared to do so, says Vinit Khandare, CEO and founder, MyFundbazaar.
He suggested several ways to achieve financial success.
7) Script your finances
Financial success should be similar to personal success, and you should approach it the same way you approach any achievement in life. Detail the factors that influence your financial decisions and the financial lessons you have learned so far. This will help you see where you made mistakes and the choices you made that are hurting your ability to earn more, save more, and invest more in the future. Review your choices every day to better manage your finances.
8) Establish your financial identity
You should equally focus on building your financial identity so that you let your financial behavior speak for you. Not everyone has the talent for investing, so it is best to consult an expert to learn more about how to invest, where to invest your money, and how much to invest. Asset allocation is important as it identifies your risk tolerance and the amount you want to save for various goals.
9) Motivate yourself to become financially independent
If you want to complete the race to financial independence, you must keep pushing yourself to continually increase your income. Take responsibility for every dollar you waste. Blame yourself for unjustly accumulating debt. Repent for underinvesting during bear markets. Reward yourself for every loan you pay off early. Reward yourself when your investments make a decent profit.
10) Don’t be afraid of financial loss
Even losses can teach you things you didn't know about money. They can lead you to buy things you didn't need to spend money on because of an unwanted trigger. But don't lose sight of your goal because of a setback.
Having the ability to save money is a blessing. You should have an innate drive to figure out how to use financial knowledge in your daily life. Check your net worth frequently to determine when you are free from financial stress. You don't need to accumulate huge amounts of assets to be financially stable. Financial independence is evident when you can buy the things you want and spend time on your hobbies without worrying about running out of money.
These tips will definitely help you plan for your future and become financially independent.
Disclaimer: The views and recommendations expressed above are those of the individual analysts and not those of Mint. You are advised to check with a certified professional before making any investment decisions.
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