Everyone dreams of becoming rich. And no matter how much your salary improves over the years, you always seem to need more.
Creating wealth however, is no easy task. As Dave Ramsey, a renown financial author rightly said, ‘Creating wealth is a marathon, not a sprint. Discipline is the key ingredient’. If you make your living from a salary then know how difficult a task it is – you have to pay your bills, take care of monthly expenses, and maybe even clear debts. However, with a little hard work, some perseverance, and a few tips from us, you can still achieve this goal. Here are 5 ways to create wealth on a salary.
1. Take care of the financial risks first
The first step to creating wealth is to remove all risks. The younger you are, the longer you have to create wealth. But regardless of your age, you want to build your base by taking care of all factors that carry financial risks. It is advisable to buy health insurance, life insurance, and start setting aside some money for retirement as soon as you start earning. These investments will keep you safe in times of need and ensure you can focus on the more exciting aspects of creating wealth.
2. Create an expense plan
Ignorance is far from bliss, especially when it comes to financial planning. From your salary, make sure you pay (or plan for) your taxes first and then bifurcate the remaining income into different expense categories. One way to go about this would be to create a 50-30-20 model of expenses. This way you will have allocated your money strategically, ensuring that you’re covering your needs, wants, and the future.
3. Be frugal with money
Brian Koslow, the author of the book ‘365 Ways To Become a Millionaire’ says, ‘The very first step to make wealth is to spend less than what you make’. Spending your income frugally will go a long way towards building wealth. If you find that you’re living paycheck to paycheck, cut back on luxury expenses like shopping, eating out, or subscriptions (think Hotstar, Netflix, etc). These steps can save you thousands annually, which can be used towards building your castle of wealth.
4. Start investing today
Investing money can be as complex or as simple as you want it to be. The basic principles you have to keep in mind are the power of compounding interest and to not put all your eggs in the long-term investment basket.
i. Compounding interest: The beauty of this principle is that if you leave money to grow itself in a financial asset like mutual funds or stocks, you will find that every few years your money is doubling without any work on your part. So, in order to build out your wealth in the long-term, make sure to pick the right assets and don’t worry too much about the ups and downs of the market.
ii. Long-term vs Short-term: One of the basic mistakes that even seasoned investors make is to put all their money in the long-term assets. By doing this, you’ll end up paying hefty interest rates on EMIs and loans to meet your short-term goals, effectively canceling out some of your long-term gains.
For your short-term goals (anything you want to accomplish within the next 3 years) consider a versatile financial tool like the KyePot digital chits. You can save money (building a healthy wealth-creation habit), borrow money at low interest rates (saving yourself from anti wealth-creation, expensive loans), and earn healthy dividends.
5. Build another source of income
This may not really be possible for everyone but if you do have skills or a side business that you can invest some of your time in, then you can generate a new stream of income to make the most of those returns. If you have a great idea to start a secondary source of income, but need some initial funds, then consider it as your short-term goal and save in KyePot’s digital chits. This will also allow you to borrow money through your savings to meet the expenses of the business.
The most important point to remember in creating wealth is that there is no shortcut to success. You need to inculcate saving discipline and become smart about how you use your salary. Let us know in the comments below which of these tips you found the most useful.