i. Avoid unnecessary debt
Carrying large credit card balances and other consumption debts is a sign that our lifestyle exceeds our income. Such consumption borrowings come with very high interest and they hurt one’s financial wellness. Unlike a home loan which creates an asset i.e. real estate property, the interest paid on consumer debts is totally forfeited.
Getting rid of high interest consumption's debts, at the earliest possible, is the first step towards being financially self-sustainable. Once free, keep off them as much as possible.
ii. Pay yourself first
Saving could be viewed as the practice of paying oneself first. Traditionally savings applied to whatever is left of income after the long list of expenses. However to be financially independent that equation needs to be turned around –
Expenses = Income – Savings!
We ought to decide how much is to be saved and then limit our spending to what remains.
The habit of paying yourself first will go a long, long way in creating wealth. Most people might believe the secret to wealth and be financially self-sustainable is a high paying job. Or that it is a prospering business. However it is neither of these. It essentially lies in spending much less than what a person earns. It lies in saving adequately to create assets that can generate income for you. And that brings us to the third good habit to be financially self-sustainable.
iii Invest in growth assets
Growth assets are typically those assets that have the potential to give capital appreciation over the long term as against in generating current income. Examples are equity shares, equity mutual funds, real estate and gold. Growth assets help in building wealth. Generally a balance of income assets and growth assets would be required for an investor at any life stage. The role of proper asset allocation for achieving investment success cannot be understated.
How long you let your investments compound is a major factor in determining how large they grow. So it’s good to follow the old thumb rule that says invest as early as possible, as often as possible… and as much as possible!
Carrying large credit card balances and other consumption debts is a sign that our lifestyle exceeds our income. Such consumption borrowings come with very high interest and they hurt one’s financial wellness. Unlike a home loan which creates an asset i.e. real estate property, the interest paid on consumer debts is totally forfeited.
Getting rid of high interest consumption's debts, at the earliest possible, is the first step towards being financially self-sustainable. Once free, keep off them as much as possible.
ii. Pay yourself first
Saving could be viewed as the practice of paying oneself first. Traditionally savings applied to whatever is left of income after the long list of expenses. However to be financially independent that equation needs to be turned around –
Expenses = Income – Savings!
We ought to decide how much is to be saved and then limit our spending to what remains.
The habit of paying yourself first will go a long, long way in creating wealth. Most people might believe the secret to wealth and be financially self-sustainable is a high paying job. Or that it is a prospering business. However it is neither of these. It essentially lies in spending much less than what a person earns. It lies in saving adequately to create assets that can generate income for you. And that brings us to the third good habit to be financially self-sustainable.
iii Invest in growth assets
Growth assets are typically those assets that have the potential to give capital appreciation over the long term as against in generating current income. Examples are equity shares, equity mutual funds, real estate and gold. Growth assets help in building wealth. Generally a balance of income assets and growth assets would be required for an investor at any life stage. The role of proper asset allocation for achieving investment success cannot be understated.
How long you let your investments compound is a major factor in determining how large they grow. So it’s good to follow the old thumb rule that says invest as early as possible, as often as possible… and as much as possible!