Why do we work hard? Of course, it is to look after ourselves and our families. It is also to save for a rainy day and to be able to spend on things we enjoy: hobbies, travel, leisure & so on as well as to look after our retirement years. It is a good idea to use some financial strategies that help one to save and to create wealth by making smart investments.
Think about your income today and the kind of professional growth trajectory you envisage for yourself in times to come. Set out financial milestones or goals for yourself: the age/year by which you will buy a house, how you will save for the education of your kids, how you will be able to afford a first or even a second or third vehicle as your family grows. Think about retirement – yes it is never too early to factor this into your financial plans.
Savings bank accounts will offer negligible interests and fixed deposits will barely keep pace with inflation. The stock market is the place to invest if one wants to actually grow wealth vis-à-vis just stagnating. If you are wary about taking the plunge by yourself, consider mutual funds. The point is to diversify investments with some amount in debt, some in equity and so on. Even if you're risk-averse, venture out of your savings comfort zone a little.
This is the financial strategy envisaged by the book The Bogleheads' Guide to Investing. This strategy advises you to start investing early in life. Live below your means, have the right credit reward strategy, buy a house at the right time, choose investment wisely, diversify investments --- these are some of the pointers this offers. We are also advised to invest regularly, and offers advice on how to keep taxes and costs low.
This is a simple spending paradigm that should guide spending. 50% or half of one's income should go to essentials such as food, transport, rent, EMIs and so on. 30% should go towards leisure activities such as travel, shopping, entertainment, eating out, hobbies etc. 20% of one's income should be saved for exigencies or invested in ways that will yield an income later in life.
This is a more extreme form of saving recommended by the book Your Money or Your Life. There is priority given to retiring early and this entails high earnings with a high proportion of one's income being invested. The aim is to save between 50 and 75% of one’s income, which could mean little or no money for leisure or life’s luxuries. It means living very frugally, strictly keeping track of and controlling spending. Early retirement doesn’t mean that one has to stop working; it merely means that you have the freedom to do only the kind of work you like and only as much as you want to – because you don’t need to.
He has been the richest man in the world at some point and continues to be among the wealthiest people in the world even today. Warren Buffet is an investor and is famous for something called value investing. He follows the Benjamin Graham school of investing, which looks for securities that are priced lower than their actual worth. Buffet looks at companies as a whole rather (its performance, profit, debt etc) than how they are doing on the stock market.
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