Dealing with surplus cash judiciously

 How you deal with surplus cash determines your future. When you don’t have a plan, you are likely to overspend. This money could have been used to make you financially self-sufficient. 

How you deal with surplus cash determines your future. When you don’t have a plan, you are likely to overspend. This money could have been used to make you financially self-sufficient. 

In the backdrop of inflation, everything is going to be costlier with each passing year. If you don’t invest, your money won’t grow to bridge the inflation gap. Otherwise, you might not be able to retire as you would want to. 

Investing can be a great way to channelize the extra cash and counter inflation. It can be used to grow wealth and divert it to goal accomplishment. The earlier you start investing, the better. Investing can be a bridge between where you are and where you want to be. 

Start with identifying goals like buying a car or planning for retirement. Categorise those goals into short-term and long-term. Goals that can be achieved within 1 to 3 years are essentially short-term. Goals that need a horizon of 3-5 years are called medium-term goals. Goals that require more than 5 years to achieve our long-term goals.

Identify your risk appetite i.e. the degree to which you are comfortable with a fall in the value of your investments. If you can digest, say a 20% fall in the value of investments, you are a high-risk seeker. Else, categorise yourself as a risk-averse investor. 

Once you identify your goals and risk appetite, you can conveniently select the investment haven. A risk-seeker may go for a diversified equity fund. Conversely, a risk-averse short-term investor may go to a liquid fund or a balanced fund. 
Mutual funds have come up as the most versatile investment haven. You can start Systematic Investment Plan (SIP) at a nominal sum of Rs 500 per month. Under SIP, a fixed amount gets deducted from your savings account and is invested in mutual fund scheme of your choice.

Maintain a personal balance sheet

 Having a personal balance sheet helps to know what you own and what you owe! It’s a pretty powerful tool to take your finances to the next level. It’s a statement wherein you can jot down your assets and liabilities. The difference between your assets and liabilities shows your personal net worth. 

Before getting started, pull together your bank statements and other proofs of the liabilities. Then, list down your assets like the bank balance, investments, home value, and value of other assets. Take a sum of all the assets to arrive at the total value of your assets. 

Further, list down your liabilities like the car loan, home loan, credit card balances and remaining balances in other loans. The sum of all the liabilities will show the value of the money you owe. 

Ideally, your net worth needs to be positive, which means the money you own is greater than the money you owe. Don’t lose heart if it’s negative. As you keep repaying your loans, your net worth is going to increase gradually. 

Yet, another critical thing in asset management is what kind of assets you need to own. You must always try to own those assets which increase in value and involve lesser maintenance cost. At the end, it’s all about how much you can really use. Simply accumulating things which you don’t need leads to blocking money in unproductive stuff. It’ll be wise to be aware of what you actually use and what you can get rid of.

Regulate your expenses wisely

 If you are living paycheck to paycheck and finding yourself struggling for money even before the month ends, then chances are you are living way beyond your means. Maybe there are a lot of unplanned expenses! These might be leaving you with no money for the necessities. But there’s a way out of this. 

Try preparing a budget. Unless you have a budget, you won’t be able to control your cash flows. A budget simply shows how much money you have coming in and how those funds are spent. 

Start by categorizing your expenses into fixed and variable; urgent and non-urgent; necessities and luxury; avoidable and unavoidable. In this way, you will create a full inventory of expenses in front of you. The more you convert things from abstract to physical, the better you will get a hold of them. 

You can create a hierarchy of needs and decide which ones to address first. It’s all about prioritizing. You need to accept that you have got limited resources and unlimited wants. But you have to manage your resources. The sooner you accept this fact, the better you can control your impulses towards avoidable expenditure. 

After addressing all necessary expenses, you can allocate some money towards entertainment and leisure. To avoid overspending, you can create a list of groceries before visiting the departmental store. You can also assign a no-spend day in the week. 

Make sure you commit to your budget. Consider it as a commitment instead of a burden and stick to the boundaries.

Manage your Money

 Managing one’s money need not be boring. It’s not rocket science and you need not be from a financial background. You only need to show a bit of commitment. 

Deciding to save is the first step towards money management. Saving money can be a powerful step towards greater financial independence. Imagine borrowing from a friend for that urgent visit to the doctor! 

In case you don’t have any friends, you might have to swipe your credit card. And you know credit card is the most expensive form of debt. Repeat this a few more times and you end up in a debt trap even before you realize that. 

You may have many financial goals in your mind. Like buying a vehicle or the latest smartphone or wealth accumulation. In all these situations, you need money. But where will it come from? You got to have savings! 

Saving money helps you avoid falling into debt traps. Not only this, but systematic saving on a regular basis can make you rich. You may achieve your financial goals in a timely manner. Now you might be wondering how to save? And even more important how much to save? As soon as you get your salary, start putting it under various heads. These heads can be expenses, EMIs, investments, and savings.

Ensure that you save a minimum of 10% of your income every month. It can be that simple! But don’t put it in a piggy bank. Idle money in a piggy bank doesn’t grow. Even the saving bank account may not fetch higher returns. 

Instead, you may invest this amount in a liquid fund. Liquid fund is a type of debt mutual fund which invests money in fixed-income generating instruments like FDs, commercial paper, certificate of deposit etc. around 4%. Invest your savings every month over a long-term and see the magic it can do for you!

WEALTH ENGINEERING TIPS

 Many people mistakenly take their income as wealth creation. However, the two are different. Your income is the money that you earn each month from your job or business. This is more or less a fixed figure that gets credited to your account for the work you do or the sales you make. When you take this money and invest it in other avenues to grow it over time, you are creating wealth.

Wealth creation constitutes a number of things like your assets, property, retirement accounts, inherited estate, gold and precious metals, etc. Putting your money in these instruments allows you to grow your financial worth over the years. The appreciation in the value of assets or the returns made from investing in stocks, bonds, mutual funds, etc., are all ways to create wealth.

8 Simple wealth creation strategies

1. Set the right Goals

The rich and wealthy people that you see and aspire to be are not always born with a silver spoon. But they do believe in setting the right goals. The first and foremost step to wealth creation is to set goals. Whether it is your retirement plan, estate plan, savings plan, or even an emergency fund, setting the right goal is the first step towards creating wealth. To ease the process, you can use a savings goals calculator.

2. Invest your Money

Famous American businessman, Robert G. Allen once quoted, “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”

Wealth creation is not about saving a certain part of your salary in your savings account each month. While having an emergency fund is important, it is also essential to invest some part of your income. 401 (k)s and Roth IRAs are a great way to invest your money. In fact, most companies meet some percentage of their employee’s contribution of 401 (k), making it a double benefit for your retirement. Investing in stocks and bonds can further increase your chances of generating more income. It is also important to start investing as early as you can in your career.

3. Maintain your Credit Score

Everyone is aware of the problems that come with debt, and yet people somehow can’t evade the debt trap. Having a debt not only takes you a few steps away from your financial goals each month, but also affects your credit score. Try to steer clear of the credit card debt cycle at the end of each month. Maintaining your credit score is essential to wealth creation as it can result in better interest on mortgage and loans.

4. Add another Source of Income

Having more than one source of income can significantly contribute to wealth creation and help you accomplish your financial goals sooner. Living in a virtual world has many benefits that the previous generations lacked. There are various websites that you can register on to take up freelance work. You can turn your hobby into a second source of income and earn on social media, blogs, or even set up a side business. You shouldn’t exhaust yourself or compromise with the quality of your life, but if you do have some extra time on hand, try finding some wealth creation strategies to generate more income.

5. Have a stable career

The high employee turnover rates are a clear indication of how people these days prefer to switch jobs multiple times in their careers. It is a good choice to move to a better paying job, as long as you make sure to not compromise on stability. Strive to keep a steady source of uninterrupted income and pension benefits. When you change jobs, study the company’s policy concerning 401 (k)s and look for benefits apart from the basic salary hike. It is advisable to always stick to a company that offers retirement benefits. Only quit your job if you have a new one at hand so you don’t dip into your emergency fund.

6. Diversify your Portfolio

Just like having multiple sources of income, having multiple investments is also one of the best wealth creation strategies you can follow. Diversification runs on the principle of not putting all your eggs in one basket. When planning out your portfolio, look at different avenues like, real estate, stocks, bonds, mutual funds, etc. Diversification reduces the risk of loss and can get huge returns.

7. Learn to Manage your Wealth

Wealth creation is not just about earning more money, it also about managing it well. A salary hike should not result in increased living expenses. Instead, it should result in increased savings and investments. With every salary hike, contribute a little to your living expenses, but save the rest for investments.

8. Invest in Real Estate

Real estate is a great way to increase the zeros in your net worth. Though they can be a little tricky, investments in the right kind of properties can contribute to great returns. Consult a professional realtor and invest in properties that can later be sold at higher interests. Real estate is a quicker way to increase your net worth than traditional wealth creation strategies.

To sum it up

Following these simple tips can be great for your net worth in the long run. Wealth creation is all about finding the right balance between traditional savings methods and taking calculated investment risks. The idea is to be consistent and cautious, and to incorporate the right wealth creation strategies.