Understand the risk factors | The most common mistake people make is that they jump into an investment product blindly. Understanding risks involved is a very important aspect of investment planning. Plan your investments based on risks involved with clear objectives and the rewards will come.
Many people are of the opinion that you need to wake up before the break of day to taste financial success. This does not mean that late risers will be left behind the race. In fact, it’s not about the time you wake up and the hours you work. It’s about the approach which you embraced to manage your finances.
One of the biggest factors that differentiate the wealthy from the rest is that they make money work for them. This is such a common advice given by many advisors. However, what does it mean? And how, you can achieve it?
Before that let me share a simple yet a thought stimulating story from ‘The Parable Of The Pipeline’ by Burke Hedges
This story circles around two protagonists Pablo and Bruno. The two friends were on a quest for financial independence in their lives.
One day, they were given a task of carrying the water from the mountain to a village. While Bruno was content with the money he earned from the task, Pablo felt quite exhausted at the end of the day. After a few weeks, an idea struck upon him. He thought of building a pipeline which can carry water on its own. While, Bruno spurned the idea, that did not deter Pablo. Soon, he started building the pipeline in his spare times. In the meantime, Bruno bought a bigger house and cow for himself.
However with time, his capacity to carry water reduced day by day. After two years, Pablo was able to complete the pipeline and now instead of using buckets to deliver water, his pipeline did the work for him. He earned a lot of money without any efforts.
So what does this story teaches us? Well, no doubt that creating pipeline was a time-consuming process, it helped Pablo to make money work for him without any efforts.
The next question is how can you replicate this model while investing in the stock market?
For you to reach financial independence, it is important to make money work you even while you take a nap. Here are four simple hacks to manage your money so that it can multiply on its own.
1. Adopt a systematic way: Getting systems in place can help you to follow a systematic method of investing. To get started in the stock market, one can invest via the automatic SIP route. In this way, a fixed amount will be automatically debited from your account every month towards your investments. This will reduce the hassle and worry of markets ups and downs. Contributing a small portion of your earnings towards strong businesses will help you to stay disciplined and consistent.
2. Power of compounding: Many investors follow a buy and rotate strategy with a view of a short-term. This is the most outrageous mistake which investors can commit. Rather, by investing in stock with strong underlying business for a long run, one can capitalize on the ‘Power of Compounding’. Power of compounding multiplies your money with time and can help you amass significant wealth. Stocks such as CEAT, Motilal Oswal, Eicher Motors mushroomed 8-12 times in the last 5 years. There are many such stocks that fetched mind-boggling returns to investors, albeit only if you allow ‘time in the market’ to come into play.
3. Develop various streams of passive income: Apart from investing in equities, you can develop other streams of passive income that can add to your regular source of revenue. Passive income will help you to pursue things which you love instead of worrying about the bills.
4. Clear all your debts: Even though this may not directly help you to earn money, it will reduce your expenses and help you have more money in your pocket at the end of each month.
To get started, it is recommended to take some time to introspect and understand your goals and what you’re good at. Even though all the above-mentioned ideas may demand an upfront payment at the start, it will definitely help you to multiply your money in the long run.