Life is a series of actions and consequences. Every decision you take (either small or big) has an impact on your future. This is why science fiction movies (Mr Nobody, for example) explore alternate realities.
‘What could have happened if I did something different in my past?’
Unfortunately, you can’t go back in time to undo your actions. That’s why it is better to make the best of your time now and secure your future through wise decisions.
In this article, let’s discuss how you can increase your personal wealth through sound financial planning.
1. Personal Wealth – Saving money is not enough
Saving money is indeed a good habit. Savings take care of specific financial goals in addition to the occasional emergency that may crop up from time to time. But when it comes to long-term wealth creation, savings may not be enough.
You need to have a proper financial plan and invest for the long-term to achieve significant goals.
2. Personal Wealth – Invest for your future through mutual funds
Investing in mutual funds can help you generate returns that beat inflation. Compared to an average rate of 5% inflation, mutual funds offer returns that are anywhere between 10-15%.
This is much higher than conservative returns offered by many other investment options such as fixed deposits. You can consider investing in diversified equity mutual funds to earn high risk-adjusted returns.
Invest through Systematic Investment Plans (SIPs) to reduce your risk exposure and increase your returns. When you invest consistently for the long run, you can earn substantial returns on your investments. Imagine you invest in an equity fund that offers a 12% annual rate of return for a period of 30 years.
At the end of the investment period, you would have invested a total amount of ₹18 lakh. But the returns you earn on this amount would be as high as ₹1.8 crore. This is possible through the power of compounding.
3. Personal Wealth – Different goals, different investments
When you use only a savings account, you dip into the same fund to meet all your financial goals. So, whether you want to buy a car or repay your debts or put a down payment on a house or even go on a vacation, your savings account become the one source of all your expenses.
This can deplete your savings quickly and in the end, it can be a problem.
Instead, it is better first to create a list of the goals you wish to achieve. These can be short-term goals, medium-term goals and long-term goals.
The next step is to identify the best investment option to help you meet these goals in the fastest way possible. For example, if you want to go on a vacation in the next 12 months, you can invest a fixed amount each month in a liquid fund.
And if you’re going to have a large corpus of wealth for your retirement, you could invest in equity funds for the long-term. This can help you earn high returns at minimal risk. This is how financial planning plays a crucial role in wealth management.
Financial planning ensures you have the right amount of money at the right time to meet all your needs. But for that to happen, you need to examine your current financial status and take steps to align your goals in the right direction.
A disciplined approach to your finances today can make all your tomorrows a lot more comfortable.