WHAT IS WEALTH

Wealth could mean different things to different people. Some say “health is wealth”, for some wealth is the ability to live life on their own terms, and for others it means being able to achieve all their financial & life goals.

Let us focus on how to create wealth so that you can achieve your financial & life goals.

STEPS TO CREATE WEALTH

Being hard-working and having a regular source of income is the basis of creating long-term wealth. But it is not sufficient. How we utilise the income so that our money generates more income for us is the other, very essential part of creating wealth.

Creating wealth requires patience, perseverance, and skill. Patience of being invested for long-term, perseverance to remain invested even during difficult times, and skill to make the right investment decision.

Step 1: Have clear goals

Most of us dream of buying a nice house, travelling internationally, sending our kids abroad to study. These are our life goals and this why we want to create wealth. 

Have a clear picture of what you want to achieve and when. Make the goals time-bound. And then start planning for it.

Step 2: Prepare a financial plan

Budget your monthly expenses. Set aside a percentage of your income for investments. And plan to periodically increase this allocation as your income increases. Increasing your investment fund is an important step in long-term wealth creation.

Step 3: Start investing early

Start investing as early on as possible. The earlier you invest, the more you earn. This is the power of compounding. At the end, the corpus you build will also depend on the number of years you have invested.  

Step 4: Invest Strategically

Diversify your investments. Invest across different asset classes. Your allocation will depend on your goals - what is the corpus you want to build and when you need it. Strategic investments are important for creating wealth

Step 4: Have long-term vision

Avoid herd mentality. Do not enter or exit the market regularly based on what everyone is doing. Invest with long-term perspective. 

Getting swayed by market highs or lows will not help in achieving your long-term financial goals. 

Let us understand this with the example below:

Consider the above graph. This person invested Rs. 1,00,000/- to start with. He kept buying and selling, trying to time the market. At the end of 16 years he earns Rs. 1,62,417/- at a CAGR of 3.5%.

Now consider this other person. He also starts his investments with a principal amount of Rs. 1,00,000/-. However, instead of entering and exiting the market at various points he stays invested for a period of 16 yrs. At the end he is able to generate a corpus of Rs. 7,20,353/- at a CAGR of 13.13%.

Building wealth requires discipline, which mean staying invested and continue investing strategically.

Step 5: Keep sight of inflation

While calculating your expected returns make sure you adjust for inflation. Make your investment decisions keeping in mind that 10 or 20 yrs. down the line inflation will decrease the value of your money. Products & services will become more expensive.

Inflation adjusted-returns will give you the real idea of your purchasing power.

CONCLUSION

Everyone wants to create wealth. We all have goals & dreams. While the process of creating wealth seems daunting & boring, we must follow it. There is not short cut to creating wealth. Claims of doubling your income in few years are most likely false. 

Do your own research, calculate your expected returns, or take advice from an expert. Start the wealth creation process today!