Introduction

Every­one might hear about the term “wealth build­ing”. And your mind sud­den­ly remem­bers about stocks, mutu­al funds, cryp­to, real estate, etc… How­ev­er, start­ing an invest­ment with­out hav­ing a strong finan­cial foun­da­tion is too risky. How risky is it? Emer­gency funds, health insur­ance, and debt set­tle­ment are the check­list every­one should tick before invest­ing and build­ing wealth.

Why is wealth building important?

Con­sid­er a sce­nario where you lose your job with­out the above three foun­da­tions. You might use a cred­it card for day-to-day expens­es with­out an emer­gency fund. After a few days, you get sick, and you must get a debt to cov­er it. If you already have a debt, this will add a huge bur­den. Even though you invest, all of it will van­ish.

Start Wealth building With the Emergency Fund

As we can’t pre­dict the future, sud­den prob­lems like job loss, med­ical expens­es, home repairs, etc., may wipe out your invest­ments.

What it is:

An emer­gency Fund is cash saved sep­a­rate­ly for easy access when there is a sud­den need. It is the insur­ance you are cre­at­ing for your­self.

How much should it be?

It should cov­er 3 to 6 months of all your expens­es like food, rent, EMI, util­i­ty, and oth­er essen­tials. 

Where to save it?

You can use a sep­a­rate sav­ings account for it or use liq­uid or short-term debt funds. So that you men­tal­ly don’t dis­turb it while you are crav­ing to spend.

Get Health insurance:

Health­care costs can emp­ty your pock­et. A sin­gle health emer­gency of you or your loved ones will wipe out your entire sav­ings and invest­ment.

Key tips:

Even though your employ­er pro­vides health insur­ance it may not be enough. Sep­a­rate or Per­son­al health insur­ance is required in case of job loss or job switch­ing.

• Choose the plan that cov­ers near­by city-based health­care costs.
• Include your fam­i­ly mem­bers.
  • If there are old or sick peo­ple in the fam­i­ly, imme­di­ate­ly choose a sep­a­rate one for them.
  • And for young and well mem­bers choose anoth­er for them.
  • This will reduce your cost. 
• Choose the Insur­ance Com­pa­ny wise­ly by ana­lyz­ing its claim ratio. 

Bonus Tip: If you are the only earn­ing per­son in the fam­i­ly, You should Open a term insur­ance.

Debt Settlement:

Debt is like a can­cer that caus­es finan­cial trou­bles for many peo­ple.

Why should it be settled?

The aver­age inter­est rate of a cred­it card is 25%. Even though your invest­ment port­fo­lio has a 15% gain, you’re still los­ing mon­ey over­all because of the cost of your debt.

How can it be settled?

There are two best meth­ods to set­tle debt:

• Avalanche method — Start with pay­ing the high-inter­est debt first.
• Snow­ball method —  Start with pay­ing a small debt amount which boosts con­fi­dence.

Bonus Tips: You often feel like “Life is once, I should enjoy and have fun”. Of course, life is only once, do not mess it up by pre­fer­ring tem­po­rary hap­pi­ness over long-term sta­bil­i­ty. You may look rich at the moment, but if it’s built on debt and impul­sive spend­ing, it won’t last.  

Conclusion of Wealth building

Wealth Build­ing is a long-term process. We can­not become mil­lion­aires overnight. It requires a strong mind­set. Inher­it­ed wealth plays a major role in eco­nom­ic inequal­i­ty. It should be like your grand­fa­ther walk­ing, your father using a motor­cy­cle, you using a car, and your son using a super­car. It is not about buy­ing the vehi­cle sim­ply on loans, it’s about the stan­dard of liv­ing.

FAQ: Wealth building

1. How many months of expens­es should your emer­gency fund cov­er?
It should cov­er your 3 to 6‑month expens­es like food, rent, EMI, util­i­ty, and oth­er essen­tials.

2. Where should I save my emer­gency fund?
Use a sep­a­rate sav­ings account or liq­uid/short-term debt funds to avoid spend­ing it impul­sive­ly.

3. Why should I set­tle debt before invest­ing?
Cred­it card inter­est is around 25%, while your invest­ment may earn only 15%. You’re los­ing mon­ey if you invest while car­ry­ing high-inter­est debt.

4. Should I have term insur­ance?
If you are the only earn­ing per­son in the fam­i­ly, You should Open a term insur­ance.