Jakarta, CNBC Indonesia Building wealth is such an interesting topic that it can spark a heated debate, promote unique ways to get rich quick, or encourage people to make deals that they may not have considered.
But are these three simple steps a confusing concept? Of course not
But while the basic steps to building wealth are easy to understand, most first-time people find them much harder to follow.
Basically, in order to accumulate wealth over time, you need to do three things, as quoted from Investopedia:
1. Earn money
This step may seem simple, but for those just starting out, it’s the most basic step to getting started with building wealth. To get money, of course, the only assumption is that “if you want money, work.”
There are two types of income that a person will receive, namely active income, where the working person will definitely receive a salary, while the passive income is obtained from the side work from the employee, whether by setting up a business or otherwise.
However, few people in Indonesia rely solely on their active income, which is the wage they receive after working 8 hours a day. But few are also able to rely solely on wages.
If you can “earn” with passive income, you already have the funds create a backup if ever your active income is not enough to meet your needs.
2. Save money
Your income is sufficient, your daily needs are also being met, but you can’t save money? Here are the ways
- Manage monthly payouts
To help you manage your monthly expenses, you can help with the financial management app. Make sure you categorize emergency funds, funds for daily needs or other do not mix these categories. After you have sorted your funds, you can keep the remaining funds
- Prioritize commitments over desires
You can also separate the musts or duties with your desires. Activities that are very important must take precedence over your desires, such as the need for your home to take precedence over buying a car.
When wanting to buy things of little importance, stick to this desire first, it is better if you save funds, so that if your long-term savings have already paid off, then fulfill this desire.
- Adapt your needs to your abilities.
Starting from point 2, organize your needs according to your financial possibilities, do not rely on debt, because if you are very dependent on debt, then you need to prepare the means to pay off the debt.
3. Invest your money
After we earn and arrange expenses, but you invest all your resources in savings? You’re wrong.
Saving is indeed important because in addition to the long term, it can also be a contingency fund should something bad ever happen.
However, if we are only relying on savings, the value of these savings will decrease from time to time due to administrative fees that will be charged each month and also due to exchange rate fluctuations.
Therefore, we should sort it out again and set aside our income for investments in other instruments, such as mutual fund stocks and bonds.
When investing, of course, we know the term “high return with high risk” which means a higher level returnthat is, the greater the risk we will receive.
This cannot be separated from investing in risky instruments such as stocks and bonds. So how do we do it when we invest in stocks, we can minimize the risk by doing diversification, both stock diversification and investment diversification.
- Diversification of the stock portfolio
One of the risks if you only have one share in the same sector is that if the shares go down, it can have a big impact on your overall rate of return.
This is called unsystematic or business risk. It is possible that a company-specific problem, such as mismanagement, lawsuits, or other matters, could cause the stock price to drop permanently.
The good news is that you can minimize this risk by having more than one share. This can be called diversification.
If you diversify by holding a large number of stocks, the overall performance of your portfolio will only be minimally affected by a few weaker performance.
For many novice investors, this abbreviation is a huge advantage over buying and researching stocks in only one sector.
However, it also doesn’t make the risk that will happen just disappear. In addition to holding at least two or three different stocks, stocks of companies from different sectors can also affect the performance of your stock portfolio.
For example, if three of the stocks you own are in the real estate sector during the corona virus (Covid-19) pandemic, there may be risks and it will affect your portfolio performance.
So if you want to minimize the risks that arise again, then apart from a few stakes in different companies you should also, these stocks also have different business sectors.
For example, if you have one share in the real estate sector, the remaining shares must belong to a sector beyond your control a pandemic, for example in the consumer goods sector, telecommunications or in the pharmaceutical sector.
In addition to stock diversification, you should also consider the need to invest in instruments other than stocks to minimize the risks that may arise.
This can be done through investment diversification, which means that if you want to minimize risk, you can invest in instruments other than stocks such as bonds or gold.
Investing in gold is indeed promising as it will continue to rise in value, even though the price of gold is also subject to fluctuations.
For example, during a pandemic, gold is considered the safest haven as non-gold instruments have an impact on the pandemic, even though the price of gold is currently “falling” due to the news of the Covid-19 vaccine.
(chd / chd)