How Gen Z can build wealth starting from first paycheck— expert lists 5 steps for financial planning

Many Gen Z face the dilemma of how to split their salary between a SIP and an emergency fund. Anand Rathi Wealth Limited's joint CEO, Feroze Azeez, offers a solution, stressing that building a strong financial foundation must precede wealth creation. He explains how making informed choices with the first paycheck and making timely investments with subsequent paychecks can pay off in the long run.

5 steps for rewarding financial planning

Feroze Azeez recommends the following strategy:

• Prioritize an emergency fund: Before focusing on wealth creation, set aside money in a liquid mutual fund or an easily accessible fixed deposit to cover three to six months of essential expenses. This protects against emergencies and prevents premature extraction or redemption of long-term investments.

• Start investing early: Split savings between building an emergency fund and starting an SIP, even if it's modest. A practical approach is to invest half of the savings in a liquid fund and the rest in a diversified equity MF SIP. This builds both a safety net and financial discipline.
• Redirect savings after achieving emergency fund goal: Once the buffer is in place, channel monthly savings into long-term investments. Identify goals and classify them into short-, medium- and long-term objectives, then calculate immediate expenditure and regular instalments to determine asset allocation.

• Match goals with right investments: Long-term goals may suit diversified equity MFs, like flexi-cap or multi-cap funds. For near-term needs, lower-risk options like debt funds or fixed deposits are preferable. Goal-based investing helps ride out market cycles.
• Increase SIPs as income grows: Raise SIP contributions over time and continue investing even during market volatility.

Importance of financial discipline

Beyond investment strategies, discipline is the key to building long-term wealth. Adequate health and term insurance are also essential to safeguard against adversity.