The beginning of a new year is considered a great time to develop new habits that help you in the long run. While health-related New Year resolutions are quite popular, we can add an additional dimension of financial health to make sure your wealth grows with desired acceleration. Wealth creation is a habit that you can inculcate but it needs a resolve and demands time. Here are some time-proven rules of wealth creation that you should add to your New Year resolutions:
Lesser you borrow richer you become
Make a budget to understand your finances
Don't wait for tomorrow; it never comesIf you keep waiting for the right time to start your investments, it will never come. You will discover that every now and then new needs will come and money will get diverted. "The basic and most common mistake consumers make is living pay check to pay check, delaying their investments month after month, year after year. Every time you delay your investment for a later day, it comes with a significant opportunity cost. Creating wealth is all about financial discipline over the long term, and the earlier you start investing, the larger the corpus you are likely to accumulate, thanks to the power of compounding," says Naveen Kukreja- CEO and Co-Founder, Paisabazaar.com.
Go for goal-specific investment
Make equity a must in investment portfolio
Don't expect miracle, start with small stepsMost long-term life goals such as retirement and children's higher education may demand a big corpus that cannot be built in a short span of time. If you try to do that, you will end up taking unnecessary risk. So, you can start savings with small amount, but if you do it regularly, it can work wonders for you. "Since SIPs require regular investment, they ensure investors are disciplined. Investors, through SIPs, can also take advantage of rupee cost averaging, which means buying units at lower NAVs when markets fall," says Kukreja. Even by investing Rs 10,000 per month for next 20 years, you can build a corpus of Rs 67,274 if your equity fund gives you a return of 10 per cent per annum.
Avoid emotion-driven impulsesEquity market is known for its volatility with high growth and deep correction. It is normal for most investors to get swayed by such significant movements. However, if you invest for long-term you should keep yourself immune from these short-term movements. "Many of those who invest in equity mutual funds are often swayed by emotions of greed or fear. They start investing more during bull market conditions and redeem their investment when there are market corrections. The key is being rational and be disciplined in the long-term," says Kukreja.
Keep reserve funds for equity investmentIf you are significantly away from your life goals such as five years or more, you can use the market correction to buy equities at a low cost. "During steep market corrections, investors should invest lump sum amount in equity funds. This will enable investors to benefit from lower valuations and reach their target corpus faster with lower contributions," says Kukreja. However, you should avoid deploying all your reserves at one go and do it in tranches. If there is further correction, you use it to invest more.