Our 50 cents on creating wealth

Rapper Curtis James Jackson III, better known as 50 Cent, filed for bankruptcy protection earlier this week. It was reported that a series of lawsuits and business calls have left the rapper in financial trouble. While this may be an extreme situation, the fact remains that it is necessary to review your financial progress, and save up for the coming months. “You may be looking to buy a house, go on an international vacation... saving is what will take you towards your goal,” says Gaurav Modi, an independent practitioner in value investing. The financial planners we spoke to, say that simply tracking your expenses, establishing a budget and of course, investing, will help you save up for a rainy day.

Vishal Baxi, founder and CEO of KV Wealth Advisers
“Inflation is one factor that affects all of us as it increases one’s cost of living. Hence, one needs to save from the start. Savings would be required for retirement especially as in our country, no social security is provided by the government.

A salaried individual shouldn’t invest his savings only with an aim to save taxes: He/she should link it with goals. He/she could buy a health insurance to counter medical emergencies and personal accident policy to compensate loss of income due to accidents. If he/she has dependents, the individual could also opt for a term plan (the traditional life insurance policy) which is equivalent to 10 times his/her income, as a thumb rule.

Additionally, one could also start monthly Systematic Investment Plan (SIP), a smart financial planning tool that helps you to create wealth by investing small sums. One could invest across diversified equity funds and identifying the best in that category. Diversified equity funds are those that spread their investments across sectors e.g IT, pharma, banking, oil & gas, real estate, telecom, FMCG etc. For short term plans, invest in recurring deposits or SIPs in debt mutual funds.”

Abhishek Gupta, founder and CEO at Moat Wealth Advisers
“The best way to save money is through a SIP in a liquid fund (a short-term debt fund which helps you save money for specific needs and yet earn some returns as you save them). You can start as low as Rs 500 per month. Money invested in liquid funds can be withdrawn easily and without any penalty.

You may come across tips where financial planners ask individuals to invest in a piggy bank and throw in loose change. However, money kept in the piggy bank loses value by seven per cent. Hence, the money is best invested in SIPs, equity stocks or fixed deposits. A commodity like gold doesn’t give any income: It only appreciates in value over a period of time. However, it is also volatile as the price goes down as well. Since it gives similar returns of fixed deposits in the long term, fixed deposits are a better-guaranteed option.

Keep a track of your expenses: Deduct 10 per cent from your salary and invest the money every month. If you manage your expenses well, reduce impulse purchases, money saved is money earned — a lot of wealth can be created.”

Gaurav Modi, an independent practitioner in value investing
It could be your higher education course fees or a house that you are looking to own, there are going to be days where there are major expenses to be incurred. Hence it is necessary to start saving early. Procrastination is in our nature, and unless you consciously decide to start saving, you will never start.

As soon as you get your salary, the best thing to do is to invest first and then leave the remaining for monthly expenditures. It is wise to opt for a SIP or a mutual fund.  It’s best advised to save from the first day you start earning: How much you decide to save is up to you. If an individual is staying in his parents’ house he can definitely save higher per cent of his/her salary.

The idea is to save in every scenario and avoid wasteful expenses. This will give financial independence after few years down the line, where you will see that apart from your salary, you are also earning a good amount from interests or dividend. Although it’s much easier said than done if the income is very low, always keep in mind the bigger picture — of your dream. The next time you make an impulsive purchase, ask yourself if the expense if really necessary.

Freshers and freelancers, here’s how you can save up
For Freshers:
Newly-employed individuals need to keep aside three-six months expenses in case of any emergency. After this provision, they can start saving in an Equity Mutual fund through the SIP route (Systematic Investment Plan). Small amounts are deducted every month to create a corpus. Freshers can start as low as '500 per month.

For freelancers:  
Freelancers should estimate their income by averaging out the good days and bad days so that they are prepared for the worse-case scenario. They should always have the cash equivalent of up to six months’ expenses as an emergency fund in bank deposits or liquid funds. Freelancers could also buy adequate health and life insurance. They could also invest in SIPS, as they do not have any pension income or Employees Provident Fund to fall back on.