Reducing paycheck dependency is the first step to wealth creation

Are you a salaried employee? If you answered yes to this question, then perhaps, this is how your average financial scenario goes. It’s the beginning of the month, and you’ve just received your paycheck. You pay off your fixed expenses like your rent, EMIs, and utility bills, and you keep the rest of your salary in your savings account. A few days or weeks later, you splurge on a fancy meal or buy yourself a new gadget. You take your family out to the movies, and before you know it, the third week of the month has arrived. And your paycheck has already been spent almost entirely. So, you wait for the month to end and for your next salary to be credited.

That, my friend, is paycheck dependency. It essentially means that you rely heavily on your salary alone to see you through all the expenses in life. And it will get you no closer to your goal of creating wealth. To actually tick that goal off, you need to reduce your paycheck dependency.

Why is paycheck dependency not a good idea?
Sure, your paycheck is valuable because it’s your primary source of income. But if you rely entirely on your salary to meet all your needs, it’s not a very good idea. Why, you wonder? Well, consider this scenario. Say you’re in your thirties now and you live on your salary. Over the years, you get promoted frequently, so your salary keeps increasing. You upgrade your lifestyle and you get accustomed to a luxurious lifestyle. And then, you turn 60 and retire.

Now, there’s no paycheck to depend on. So, how are you going to meet your everyday expenses and sustain your lifestyle? In fact, how are you even going to get your basic necessities? The answer seems obvious, isn’t it? You need to have a retirement fund you can rely on. This wealth that you need to create – that’s the long-term target. And reducing your dependency on your paycheck is the first step toward that end goal.

How do you reduce your paycheck dependency?
There are many strategies that you can use to minimize your dependency on your paycheck. You can consider investing in long-term investment options. You could supplement your paycheck with trading income from the stock market. You could even consider real estate or gold as an investment.

Let’s look at some pointers that will help you reduce your dependency on your salary, so you can meet your long-term goal of creating wealth.

Create a budget
As always, the first step towards leaving the nest is creating a budget. When you draw up a budget, you get a clear picture of how much you’re earning and how much you’re spending. The balance is what you have left to create wealth with. So, to arrive at that golden number, a budget is your best friend.

Pick the right investment options
Investors often tend to focus too much on long-term investment options alone. That’s essential, no doubt, but it’s not sufficient. You also need to supplement these investments with others that give you short-term returns. For instance, if you make decent profits from trading in the stock market, you could use those gains to invest for the long term.

Diversify your portfolio
Many investors understand that paycheck dependency isn’t ideal. And so, they do invest, but often only in a narrow spectrum of investments with just a couple of options. This may not be the best scenario, since it concentrates your risk greatly. Instead, try diversifying your portfolio a bit more and consider mutual funds, real estate and gold as investment options.

To successfully wean yourself off your dependence on each month’s salary, it’s also a great idea to supplement your main source of income with other streams of earnings. Interest from FDs, a side hustle, or investments that pay out periodically could help you in that direction. You could also invest in real estate and rent out your property for residential or commercial purposes. Another way to become less dependent on your paycheck is to include gold as an investment and add choices like mutual funds and stock market investments to your portfolio.