Not only to earn extra or create wealth, but you need to create at least one additional source of income to reduce the risk of facing survival problem in case of unfortunate loss of the sole source of income.
Apart from making resolutions at the beginning of a new year to do something good or to leave some bad habits, people also wish to earn more than the previous year in order to cope up with increasing prices, lead a better life and create wealth to ultimately achieve financial independence.
For earning more, you may work harder. But time is limited and everyone has only 24 hours a day to work as well as to take adequate rest. So, apart from your usual job, you would have very limited time for extra work to earn substantially more. For example, you may do home tution after your office, but you may be able to teach a limited number of students as you won’t have much time left for self study and teach in different batches.
So, for a single person, time constraint is the major obstacle to work harder of his/her own to generate substantial income through one or more sources. Hence, you need to employ other people to overcome the time constraint, for which you need to invest to start a new venture.
However, starting a new venture not only involves taking risks, but it may not be permitted for you to start a business if you are a salaried person.
To bypass the restriction, salaried people may start a venture in the name of his/her spouse or any family member, but proper time has to be dedicated to make the venture a successful one to ensure that the capital invested doesn’t go waste. But there is no guarantee that a new venture would succeed even if proper time is given to run it. So, capital invested bears high risk.
However, depending on a single source of income is also very risky. If you are a salaried person, losing job due at the time of major economic crisis may put a question mark on survival. Moreover, at the time of crisis, taking risk to invest whatever left to start a new venture would not be a good idea at all.
So, not only to earn extra or create wealth, but you need to create at least one additional source of income to reduce the risk of facing survival problem in case of unfortunate loss of the sole source of income. So, what to do to create another source of income by assuming lower risks?
“Never depend on single income. Make investment to create a second source,” said investment guru Warren Buffett.
So, you need to invest to create a second source, but to reduce the risk, instead of starting a new venture, save and put money in the businesses that are running successfully.
There is no doubt that the actual wealth creators in any society are the businessmen. So, to create wealth, you also need to take advantage of business earnings by investing in the equity capital employed by successful businesses houses through stock markets.
However, equity investments are not only subject to market risks, but unless selected properly, you may lose the money invested in a company if it goes bankrupt. So, you not only need to have time and knowledge to select a good company to invest, but also need to invest in a number of companies to diversify to reduce the company-specific risks.
To reduce such hassles, you may enter stock markets through equity mutual fund (MF), as Asset Management Companies (AMCs) employ fund managers to do research works to choose companies with healthy financial status. Moreover, each equity fund also has a number of companies in the portfolios to ensure proper diversification to minimise company-specific risks.
Moreover, to minimise the market risks, instead of lump sum investments, start investing through Systematic Investment Plan (SIP), in which money gets invested in a periodic interval. So, investments are made across investment cycles – both in high market as well as in low market, which reduces the market risks through rupee-cost averaging in long run.
So, to generate a second source of earning and create wealth without taking much risks, start a long-term equity SIP.