How to Accumulate Wealth and be Financially Free

Accumulating wealth can be attained through proper planning and determination, no matter what your current financial status is right now. There are a lot of people who want to accumulate wealth but don't know where to begin. I have listed a few guidelines to help you get started with your path to financial freedom. With a little discipline, patience and determination you will attain your goals in no time.

Start now! 

Money invested today will earn more than the money that is invested tomorrow. Procs why a lot of people don't prepare for their future. Ask yourself how many times you planned to save or invest but never started. If you don't start now, you will always find a reason why you can start tomorrow. Some of the common reasons people tell themselves are "It is pointless to save now since you can only set aside a small amount." and "I am still young I can always start preparing when I am older". This is the most common misconception among young adults.

The best time to start preparing for your future is when you have minimal responsibilities and low cost of living. It is when you are young that you will have more cash to spare for your future. Even though if you are earning a low salary, your expenses is also at a minimum. As you grow older it will be harder to set aside a portion of your income for your future. Once you start a family, there will be more expenses to worry such as rent or monthly amortization, groceries, utility bills, and tuition fees. Starting early will give you an edge when you grow older. Time is the best tool you have in increasing your retirement fund.

Invest now even if you have a low income! 

If you think it is better to plan for your retirement once you earn a bigger salary. Well guess what? by the time you do earn a bigger salary, your expenses will also rise. Your needs and wants are usually determined by how much you can afford. If you think your salary is not enough to start preparing for your future, then you'll probably think the same thing even if you earn twice than what you are currently earning right now. Having a limited income is not a hindrance to investing. There are numerous investment products that offer minimal initial investments. Banks and mutual fund companies also offer monthly investment programs for as low as Php2,000 a month.

Spend Less than What you Earn

When it comes to accumulating wealth one must set aside a portion of his or her income for investment. Spending less than what you earn is the foundation of wealth accumulation. It doesn't matter how much money you earn, what really matters is how much money you keep. Track your expenses and establish a budget. This will allow you to determine and lessen unnecessary expenses.

Try to set aside ten to twenty percent of your monthly income as funds for your returement. You don't need to restrict yourself from all your wants, it is ok to splurge a little every once in a while as long as you have already set aside something for your retirement funds.

Stay Out of Debt.

Paying all your debts should be your number one priority. The interest you save from your debts are guaranteed savings. The monthly interest from you credit card in the Philippines is at 3.50%. This is equivalent to an annual rate of 51.169%. It is nearly impossible to consistently earn this returns from investing. You are assured of saving 3.5% by paying your credit card bills in full. Instead of trying to look for investment opportunities to increase your net worth try to eliminate all of your debts first.

Prepare for the unexpected

Establish an emergency fund immediately. This fund is vital in keeping you from acquiring debt in unforeseen events such as accidents or the loss of your job. Try to maintain an emergency fund worth 6 months of your income or expense. Your emergency fund will serve as a buffer during times when you lose your monthly income or are faced with unexpected expenses.

Invest in life and health insurance. Most life insurance can be bundled with health insurance known as critical illness riders. Critical illness riders provide you with financial protection in the event that you are struck with a life threatening disease.

Most people don't expect to get these diseases and never prepare for it. Even though chances are slim that you will suffer from these deadly diseases at a young age, it is always better to be prepared than regret it later. The consequence of being caught unprepared is too high a risk, it will wipe out your life savings and put you in a lot of debt. A health insurance will increase your chances of surviving deadly diseases by getting the best medical attention without worrying too much about the cost. Instead of focusing on the cost of curing your disease you will focus on getting the best medical attention for your sickness.

Look for Alternative Sources of Income

Increasing your income will help you achieve your financial goals faster. Whether work as a freelancer or establish a small online business, each extra income you put in will bring you closer to your financial goal. Make the most of the skills or hobbies that you possess. You can also sell unused items or buy and sell items at a profit. The extra effort you put in earning those extra pesos will go a long way. There will even be some instances you will earn more from your alternative income than what you earn from your job.

Save to Invest. 

When you are building your retirement fund it is unwise to put it in a bank savings account. You are guaranteed to lose the value of your money once you put it in a bank savings account. The returns offered by these type of products are so low that it is not even enough to counter the effects of inflation. The average interest rate for savings account which is at 0.35% is a far cry from the average inflation rate of 3-4%. You shouldn't place money in a savings account for a long time. In order to increase your wealth faster, you need to let your money work for you. Your primary goal should be to find ways to counter the effects of inflation.

Don't be tempted with investments that offer unrealistic returns, if it sounds too good to be true then it most likely is, these are probably scams which could wipe out your retirement fund. You should invest your money in sound investment vehicles that are tried and tested. There are different investment products available depending on the persons risk appetite. There is always risk involved when it comes to investing, there is no such thing as guaranteed returns but you can lessen your risk by diversifying and investing for the long haul.

Unless you really know what you are doing, it is advisable that you diversify your investment. You can split your portfolio with equites, bonds and tax exempt time deposits. If you don't have the time to monitor your investment portfolio you can invest it in a reputable mutual fund company or bank trust department and let the professionals handle your money. Even if you invest in  a company that is well established, it is always better to spread your investment in several reputable companies.

If your plan is long term investing, you can take advantage of the volatility of the stock market by using a tried and tested method of investing. Cost averaging requires you to invest regularly in the stock market and ignore the price of the market. When the market is down you can buy more shares when the market is up the value of your portfolio increases. Cost averaging puts your investment portfolio in auto pilot and prevents you from making emotional and unreasonable financial decisions. Most people commit financial mistakes when they let emotions cloud their judgement.

Research, Learn and Persevere

People are usually emotionally involved when it comes to money. If you don't understand what is happening to your money, investing will be an emotional roller coaster ride. It is important that you learn the basics in order for you to make better decisions. Research on different investment vehicles, how they differ and what best fits you.

Building your nest egg requires a lot of patience and determination. There will be times when fear and frustration will push you to cut your loses and give up. There will also be times when you will be tempted to spend what you have accumulated. It is important to focus on your goal and don't give in to temptation. Don't rush things, most investment mistakes are committed because of the temptation of easy money. A lot of people are fooled by scams due to the urge of getting rich quick. If it is too good to be true than it probably is.

No comments :

Post a Comment