Thursday, January 13, 2011

Where Do you Allocate Your Salary Raise?

Where Do you Allocate your Salary Raise?

If you are doing a job at some company or any other kind of job than the above question is for you. Well, most of the people treat their pay raise for earmarking future consumptions. Here is how the most of the people allocate their salary raise?

- Buy new Car on Down payment
- Scratch down their credit cards more because now they have more income so they can afford to pay more credit card debt
- Buy a larger home on mortgage
- Earmark the future income for other consumer things

This is the most common tendency of people. Whenever they get a pay raise, they simply allocate their future income in such a manner that little go for long term investing. Now, what the people who are going to be rich allocate their pay raise?

Well, they divert this additional cashflow towards investments. They increase their Mutual Fund SIP whenever they get a pay raise. They now buy more stocks and bonds. They now buy a rental property and generate additional sources of Income (Passive Income) and do their best to acquire assets at cheaper price.

And the rewards are long term. Initially the rewards of investing the salary raise are not visible. But in the long run, these people become more financially secure and rich than those who spend their money behind high consumer life style.

If you want to become financially free than you should divert your cashflow towards buying assets and not the liabilities. Consumer items will never give you any kind of dividends or capital gains than why should you buy those items? Instead of that buy Assets out of your money and believe me, you will become rich and financially free over the time…

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