Reaching goals and achieving personal ambitions are major objectives of one’s life. In order to make plans for the future, you need to know where you are today and where you want to be in the future. Thus, making financial goal-setting a necessity.
Financial planning is very much like planning the itinerary for a vacation or business-related trip. You need to know a starting point of investments and ending point, the time frame for ‘travelling’ (or reaching your financial goals), and an estimated rupee cost.
In today’s low-interest rate environment, everyone talks about how investing can get you good returns than just letting money ‘rot’ in the bank. While financial investment is not rocket science, people lose fortunes and ruin their lives doing it wrong.
In this article, we will discuss some elementary principles of money making that every investor should contemplate while making investments.
Basic Principles of Making Money
Everything Has a Price
Everything in the world comes with a price tag — be it your small household expenses to major life goals like purchasing a house or car. Even when you go for investments, you first need to pay the price to earn money.
For instance, when you purchase any one of the multitudes of wealth creation tools, you first must invest a sum to get back returns. You invest in funds of your choice and pay the sum, only then you become eligible for earning money.
1+1 Always Equals To 2
This childhood math works out well for different phases of your life. When you go for financial investments, you must always keep this equation in mind. There are many businesses out there offering you options to double, triple or even quadruple your investments. However, that is not the case. Every penny you invest in the market and every penny you earn as return are subjected to certain conditions.
The chances of earning thousand rupees on investing thousand rupees is likely more than the earning four times returns. So, when investing your money, never go for the shiniest deals on offer as ‘all that glitters is not always gold’. Think it through, evaluate and then invest.
- Time is The Key to Wealth Creation
Time is ‘The’ factor to wealth creation. It is important to understand that the earlier you begin investing your money, the more time you will provide your investments to grow. This phenomenon is known popularly as the time value of money.
The basic principle behind this is that when you start investing money, you get returns per year. The coming year you get a return on your original investment, and you get a return from the reinvested returns from the previous year, and the year after that. You keep on getting returns on your initial investment and returns from the reinvested returns. You get where we are trying to go with this? This, my friend, is the power of compounding.
The Inescapable– Insurance
While not a tool of wealth creation, term insurance is an instrument of wealth protection. It is the most secure choice of providing financial security to your loved ones if something unfortunate happens to you. This means, in case of your demise, the money that your family will require can be provided by purchasing a term plan. This tool does not require constant monitoring and can be purchased with a few clicks.
You can select the best online term plan by going through the plans offered by insurers who are market leaders in this sector. Moreover, leading insurers like Max Life Insurance also offer many benefits with term insurance like tax benefits, rider facility, milestone-based insurance planning and so forth. Further, you can also go through online term insurance comparison provided by different insurance aggregators like Policy bazaar and others to choose a plan that best suits your preference.
As an investor, you need to understand your appetite for risks, as this will help in determining how much risk you can take. The other half of the story is thorough understanding and considering how risky the investment is.
Once you are acquainted with the risks you are taking, you can go about trying the diversification strategy that suits your risk profile. This will further reduce the risks and increase your chances of earning more money.