Not everyone is financially sound and belongs to a rich family. They need to earn their financial freedom by doing thorough financial planning from the start.
Financial independence liberates a person to spend his earning as well as enjoy his life by providing him enough space to fulfill his wishes. The families who are not wealthy enough require careful planning of the finance and allocating those finances according to the needs and requirements.
To create wealth involves some of the following steps:
1) Saving
The first step is saving by spending that much of the amount which you required from the amount of earning. To save, a person needs to maximize the earning and minimize the spending I. e. cutting down the useless expenditure from your spending list. And for saving and earning more, one needs to increase his/her skillets with the time which is increased with the increase in the level of experience or by pursuing higher education or choosing a career which generates maximum income.
To spend, a person has to control his/her spending habits which can be done only by prioritizing the things. One must avoid if possible taking loans or buying things on EMI that result in an obligation to pay from future earnings for the current consumption. One must inculcate the habit of saving from the very first day of the earning.
2) Investing
Just saving and spending less amount does not make you wealthy and to generate wealth one needs to invest the saving amount at a place that grows your money with the increase in time.
Fixed-return instruments like fixed deposit (FD), bonds, etc are safe and appropriate for short-term investments but for the creation of wealth, an investor needs to take some risk and invest inequities.
Equities are capital investments and are subject to market risks. One should invest their capital only if he is targeting long-term returns. Equity investors face capital risk as the market keeps fluctuating and changing so is the investment. To earn wealth a person needs to follow some financial basics otherwise the dream to be financially independent can get shattered.
The financial basics are –
Building an Emergency Fund
Before investing, one should maintain a contingency fund for emergency purposes as a need for the unforeseen event can arise at any time. So, one should prepare before running for liquidity at the time of need. An emergency fund should support at least 6 months of your spending.
Taking Insurance
Term insurance is an example of creating wealth and meeting the needs and requirements. It provides security to the dependents of the deceased for their untimely death. One must take cover against medical expenditure by taking a health insurance
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