Q. I am 25 and have recently started working. I stay in a small city and don’t have much idea about saving money. Can you please help with a few tips that can help me accumulate wealth in the long run? Sumesh Arora
A. Firstly, congratulations on becoming financially independent. Like many young earners, you may want to enjoy your first few salaries before channelizing them into savings to secure your future. There is nothing wrong in enjoying your first few salaries, but the key to wealth accumulation lies in financial discipline. Here are some tips to follow to accumulate wealth:
Decide your financial goals: Start by creating financial goals and investing accordingly. This will help you pick the investment tenure, select the right investment product, and achieve your life goals on time.
Stay Insured: Unforeseen emergencies like hospitalization and accidents can burn a hole in your pockets. Getting insured with an appropriate cover will help you remain financially safe.
Budgeting: When you get income from salary or business, plan a budget as per your financial goals and only incur expenses that are necessary. Also, try to allocate a part of your income — at least 20% — towards investments.
Focus On Inflation-Adjusted ROI: The regular return on investment (ROI) as advertised by banks/financial institutions may or may not consider inflation. Therefore, focus on real rate of return, i.e. inflation-adjusted return on investment. Higher inflation-adjusted ROI will contribute towards greater wealth creation, whereas lower returns could indicate wealth erosion in the long term.
Taxation: Investing in certain tax-efficient financial products such as ELSS and tax-saver FDs can go a long way towards lowering your tax liability, thereby increasing your savings.
It is always wise to begin early to financially secure your future. So, do not wait for the best time to start saving. Just follow these tips and be wealthy.
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