How to Become Rich – Six must things to practice

How to become Rich

How to become rich? It’s a question which does not have any absolute answer. Many of us are struggling by asking this question to ourselves. Financially successful people build their wealth by disciplined investing and following some guidelines.

Becoming rich takes sincere effort and vision. You have to remember each and every time about your financial goal, spend within the budget limit and develop good habits for better financial future. Here are six tips which will give you the answer to the question ’How to become rich’.

1.       Start Early

Do you want to meet your financial goals? Everybody will surely answer yes. To meet the financial goals, one smart way is to start early. Almost all of us do not foresee the requirement of savings for our future at early stages of our career. We miss three to five years thinking we will do invest after some time because we have enough time in our hand to build a portfolio. I was also in that queue. But when I realized, I started an SIP in Canara Robeco Equity Tax saver Fund with a very small amount i.e. Rs 1000. The small amount is now giving me 16% ROI per annum over a period of four years. You will not believe how a lag of 5 years can affect you. You want to build a retirement corpus of Rs 1 crore at the time of your retirement.

Now assume that you have the time of 25 years to retire from now. How to become rich-start earlyTo save Rs 1 Crore, you have to save Rs 6249 considering 12% ROI per annum. If you start late and you have 20 years in your hand to save the same amount, you have to save RS 11565 per month. In another way, if you invest Rs 11565 per month for 25 years you will end up with the amount i.e. 2.2 crores. So 1.2 crore is the gain for the investment coming from first 5 years.

If you start investing early, the power of compounding can do magic for you. One who has understood this concept, I think half of the investment principle is understood by him or her and thus ‘How to become rich’ article will meet its purpose by helping you to understand.

2.       Save first and spend later

Yes, you have read absolutely right. All of us invest our surplus amount after spending. But this thought has to be changed. First, you have to save and then spend the surplus amount. According to Warren Buffet, the great investor ‘[Tweet “Don’t save what is left after spending; spend what is left after saving – Warren Buffet”]’. We have to be happy doing or maintaining SIPs regularly rather than over spending on EMIs.

Also Read: Five Best Expense Tracker App for Money Management

3.       Increase savings systematically

When your salary or income increases, what you will do? Most of the people raise their standard of living and ultimately spends more. But, it is wise to increase your savings also at the same rate to build a sizable portfolio. Even a mere 10% in the increment in every year in savings will help you to build a significant increment in the total corpus. Take the example of the first point. If you invest Rs 11565 per month and increase 10% every year you can save approximately 4.3 crores assuming an annual rate of return as 12%.

Take the example of the first point. If you invest Rs 11565 per month and increase 10% every year you can save approximately 4.3 crores assuming an annual rate of return as 12%.

4.       Invest in Direct Mutual Fund

When you invest in mutual fund through an agent, your effective investment amount is less due to agent’s commission. SEBI has ordered the mutual fund houses to launch the direct plans of all schemes in 2013. These plans are bought directly from the fund houses, bypassing the agent. The savings on agents’ commission are passed on to investors in the form of the lower expense ratio. Even 0.5% less in

Even 0.5% less in expense ratio which in turn gives you the 0.5% more returns on investment. This 0.5% over the years helps you to achieve a significant size of the corpus. A monthly investment of RS 10000 for 25 years, with 12% ROI can give you the return of approximately 1.9 Cr. In the same way, if the return is 12.5% you can save approximately 2.1 Cr. Now, you can see the difference between the two cases and obviously later is preferable.

Also ReadHow to Buy Direct Mutual Funds Online

5.       Diversify investment portfolio

Diversification of investment is to minimize the risk which is associated with a specific asset class. Don’t invest the entire sum in one asset class. Try to diversify the total investment into different asset classes i.e. equity, debt, gold, real estate etc. according to your risk taking capability. The risk taking capability is becoming less when you grow old.

So re-balance your portfolio and reallocate your assets considering the changing risk taking capability. At a younger age, equity allocation will be more and gradually over the years it has to shift to debt instruments for risk-free return.

6.       Review the portfolio twice a year

Most of us invest and forget about the investment. There is no tracking of how the portfolio is appreciating or which asset class is performing well or not. I request all of the investors to take out time and review your entire portfolio at least twice a year. Classify the investments which are performing well and which are performing badly. Drop the investments or at least review the bad performing investments and rephrase your plan accordingly. Reallocate your asset class; modify your portfolio and investments to reach the goals which you have decided earlier.

Also ReadEight Financial Habits Which Can Make You Wealthy in 2017

Share the article to the world via social media.:)

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.