Happy new year to all my readers. New year is the time for resolutions, so let us take some financial resolutions for the year. The idea is to take new year resolutions for wealth creation. Wealth creation as much about a strong resolve as it is about financial acumen. So let us take a few resolutions for the year:
1. Borrow less
Borrowing essentially means that you are consuming tomorrow’s money today. Additionally, there is also an interest that you would pay on the loan. The only case where debt makes sense is if it provides you with a leverage. If taking a debt today means you can use it for something that would generate wealth in the future greater than the debt + interest, then by all means do that. An example is taking debt to invest in real estate. Though I am not a big fan of investing in real estate in India and you can read my thoughts about it here.
2. Make a budget
Most of the people rely on their mental ability to figure out their expenses and hence investment. This leads to investment being an after thought i.e. people spend first and then invest whatever is left. However, the equation should be the other way round. Invest first and then spend. But in order to do that, you must be absolutely clear how much your expenses are. Hence, making a budget becomes absolutely important. It also helps you figure out what are those unnecessary spends that you are doing. Cutting down on such expenses would help you a lot in your FIRE journey.
3. NOW is the right time to invest
If you keep waiting for the next downturn or the next bonus to start investing, trust me, more often than not you would keep waiting. Most likely, a new need will come up and you would end up using the money you are accumulating to invest at the “right time”.
4. Invest with a goal
Investing without a specific goal is like working on an assignment without a KPI. You may end up doing great but you would not know how great it is. Having a goal helps you figure out the corpus required, the timeline, the amount of risk and hence the investment amount. It also helps you figure out your exit strategy i.e. when to move money out of equity to debt etc.
5. Small steps go a long way
Don’t worry if you have only Rs. 5000 or Rs. 10000 to invest or even less. Start investing with whatever you have, but maintain the discipline. Even if you invest Rs. 5000 per month for 20 years, you can end up having Rs. 37 Lakhs with a 10% annual return. The power of compounding is in your favour, so go ahead and invest.
Take these 5 resolutions today and have a happy investing in 2020.