Building wealth is an essential aspect of achieving financial security and stability. This is more important for young couples. By building wealth, you can achieve your goals, prepare for your future, secure your financial well-being, and plan to start your family.
Two individuals may have different lifestyle goals and ways of handling personal finances but once married, this is a good time to put your goals together to create a clear financial roadmap for the years ahead. Sign up on the Koshex platform to start your investment journey smoothly.
Building wealth requires a lot of discipline and proper planning. Besides, it’s a long-term process. You can start by aligning your financial goals and then marking specific timelines for when you want to achieve them. Once the basic roadmap is in place, it is easy and convenient to put it into practice and to track outcomes.
Things To Watch Out For While Building Wealth
Have an open discussion about your financial health: An honest conversation about your financial status is essential for a young couple.
A few factors to discuss are as follows:
o Your contribution towards monthly expenses and investments
o Understand your risk appetite
o Shortlist investment avenues according to your risk tolerance
o Check the tax advantages of the shortlisted options
o Decide who will handle and review the investments periodically
Create a monthly budget
Create a realistic monthly spending plan and stick to it. It ensures that you have enough funds to meet your needs and wants. Budgeting minimizes the possibility of incurring debts and helps you fulfill your existing obligations. Here, you can also use the 50:30:20 rule of budgeting. The rule states that you must keep aside 50% of your post-tax income for your needs, 30% for your wants, and 20% for savings and debt repayments.
Build an emergency fund
Unforeseen situations like medical emergencies, job losses, pay cuts, etc., can knock on your door anytime. Having an emergency fund in place will help you to face these unexpected situations without financial distress. It also lowers your chance to take loans at higher interest rates during emergencies. Ideally, your emergency fund should have your six months’ basic expenses.
Make sure not to keep the emergency fund in the same bank account where you keep aside the money for day-to-day expenses. Moreover, your emergency fund should be easily accessible so you can withdraw money anytime.
While building the emergency fund, set a target date. It aids you in achieving the goal swiftly. Channeling your financial windfalls into the emergency fund will allow you to reach the target earlier. Thereafter, you can save for other financial goals.
Pay off your debt
Keep in mind that debt is a roadblock in your wealth-building journey. The best approach is to clear them at the earliest. List all your debts in a sheet and rank them according to their interest rates. Clear the one with the highest interest rate as a top priority. Include your credit card obligations in this list. Now, pay off the one with the higher interest rate first and proceed to the next one.
While paying off debts, try not to take on new obligations; use credit cards only for high-token purchases. Also, clear the entire credit card bill every month before the deadline. If you can’t pay the total amount in any month, pay more than the minimum amount. This will help to improve your credit score and avoid late payment penalties.
Consider a credit card balance transfer if you carry considerable credit card debt. A credit card balance transfer allows you to bring multiple credit card debts under one umbrella. Further, it reduces the debt burden and makes your debt manageable.
Set your goals and start investing
For instance, retirement savings is a long-term goal for young couples, while buying a dream home can be a short-term goal. Have a clear idea about the funds you need to achieve these goals and the time horizon to reach each milestone.
After building an emergency fund and paying off debts, start setting your financial goals. You can categorize them as short-term or long-term goals.
Then, develop a time-oriented plan to achieve these goals. It gives you a clear idea of how much you must save for each purpose monthly and where to park this money. Investing these funds in assets that offer high yields and, at the same time, provide tax advantages makes sense.
Invest in multiple avenues
Try to allocate funds in various asset classes. It reduces the risk of losing money. During asset allocation, you should consider your risk appetite and how far the goal is from now. Preference should be given to high-yield saving options that have tax advantages. Avoid investment options with complex rules.
As a young couple, park a major chunk of your funds in equity-oriented options such as stocks, mutual funds, and more. A balanced and ideal asset allocation for people in their 20s is 80:20, i.e., 80% in equity and 20% in debt instruments.
Further, the ideal investment strategy for long-term goals is to park more of your money in equities. Though equity instruments show high volatility, historically, they have given more returns than debt instruments in the long run.
Reduce the impact of taxes:
Before investing in an asset class, you must check its tax implications. Putting funds in tax-advantaged accounts is one way to minimize your taxes. You can further reduce your tax bills by selecting the proper investment period. Returns from long-term investments attract long-term capital gains taxes, which are much lower than short-term capital gains taxes.
Review the progress of your investments
Investing regularly is not the last step in wealth building. Your investments require regular monitoring and evaluation. Many times, due to changes in market conditions, such as economic slowdown, political situations, industry perspective, etc., your investments fail to produce returns as expected. In such cases, a regular review will help you decide and make changes according to the situation. Thereby, you can minimize the losses and reach your goals on time.
Related: Why Women Need To Start Saving
Building wealth is crucial for young couples as they embark on a life together. It provides financial stability, helps them achieve their life goals, enables them to retire comfortably, and can create a legacy of generational wealth. By adopting sound financial habits, such as saving, investing, and avoiding debt, young couples can achieve financial security and set themselves up for a successful future together. Building wealth takes time, effort, and discipline, but the benefits of doing so are immeasurable.
Sign up for Koshex to start your wealth-building journey with small sums.
Which is the best time to start building wealth?
There is no better time to start wealth building. The earlier you start, the more time you get to grow your money. These days you don’t need a hefty sum to start your wealth-building journey; instead, begin with a small sum and increase it gradually.
What are the pillars of wealth building?
The three pillars of wealth building are:
· Earn Money
· Save Money
· Invest Money