It’s always better to start saving early in life. However, savings alone will not help you maximize your wealth or say, become a millionaire in your 20s and 30s. Your wealth increases when you invest your savings into market-linked instruments and create more than one sources of income. Also, you would need to keep your tax liabilities to a minimum if you don’t want to lose a significant portion of your earnings.
In short, becoming a millionaire at a younger age is all about making smart financial decisions to maximize your investment returns while keeping your debts and tax liabilities to a minimum. Here are a few important practices that you need to start with right now.
1. Identify Your Financial Goals
You have started saving early; however, will your savings be enough to become a millionaire, say a few years down the line? This is an important question that you need to ask yourself because saving aggressively or investing without knowing your financial goals is a mistake many young adults make.
Which brings us to the next crucial step in your financial planning, which is identifying your goals. Rather than just jotting down your desires on a piece of paper, segregate your goals into three categories, short-term, medium and long-term goals, listing them along with the number of years to achieve each goal.
2. Create More than One Sources of Income
While most young adults feel that making money is a stressful ordeal, finding opportunities to increase your income are not that scarce. A recent study puts things into perspective, by observing that most self-made millionaires today have three or more streams of income.
Out of these sources of income, investments made into financial markets deliver the highest returns, especially those made in ULIPs and ELSS plans. Since both these instruments are long-term investment schemes, their profits are relatively less affected by the volatile markets.
Overall, ELSS allow you to invest small amounts into equity funds systematically. Therefore, you become more disciplined in savings while creating a significant wealth in future. On the other hand, ULIPs offer the unique proposition of availing the benefits of both investments and insurance under a single plan.
Reputable insurers such as Future Generali give you the opportunity to invest in a variety of money-market funds and switch between ULIP funds as desired, while securing yourself from the uncertainties of life via an insurance cover.
Also, both ELSS and ULIPs offer tax deductions up to a maximum of Rs. 1.5 lakh under Section 80C. Therefore, you can not only create additional sources of income through ULIPs and ELSS but reduce your tax liabilities too.
3. Create a Contingency Fund through Short-term Debt Fund Investments
In general, we rely on our savings to meet all short-term financial contingencies like undergoing a health check-up or loss of a job. However, instead of having a traditional approach and putting some amount into a savings account, earning merely 4 percent interest in the process, you can invest your income wisely.
There are several short-term debt and liquid funds that offer a higher rate of interest than savings accounts while allowing you to make withdrawals as per convenience, thus making them the perfect solution for creating a corpus for meeting most financial contingencies. This way, you can focus more on wealth creation rather than burning down your finances to meet the sudden lifestyle and medical expenses.
4. Invest in Yourself
While maximizing your income can take care of your financial needs and make you rich, there is one investment that can help you appreciate the gift called life. And that investment is time. You can focus on making more and more money, but it is equally important that you take some time off to invest in acquiring knowledge. You must strive to consume knowledge like air and keep your pursuit of learning as priority.
Read for at least 60 minutes a day, seek out mentors or listen to podcasts from industry experts and eminent personalities. You don’t have to be a master of your field. Rather, you must work towards becoming a well-rounded genius who has knowledge about various subjects whether it is financial, political or even sports. You may be surprised to know that most modern-day successful and wealthy individuals are voracious readers. One of the richest people in the world today, Warren Buffett estimates that he spends almost 80 percent of his working day in reading.
Nowadays, money is the prime motivator that dictates all significant decisions in our lives. Whatever we do, we always strive to earn more and more money and if possible, become filthy rich as soon as possible. However, how many of us can go on to become a millionaire in our 20s or early 30s? You may work to the best of our capabilities for as long you want, but to realize your dream of becoming a millionaire, you need to put in something extra.
That extra is all about creating more than one sources of income and minimizing your debts and tax liabilities. Buying a ULIP plan, for example, lets you invest your savings into a variety of equity and debt instruments, and helps create a significant amount of wealth over time. Even if you are new to the concept of financial markets, you can assess your ULIP investment goals and expected returns with the help of an online ULIP calculator.