Growing wealth is not that complicated, but when you will ask people how they grow their wealth, seven out of ten will not be able to answer this and some will even be curious to know the answer. But, the fact is wealthy people don’t have some secret that you don’t. They just plan things and work as per their plan, they have set their financial goals and try to achieve them by following certain strategies that you aren’t.
Wealth creation is the process of creating new wealth using your existing money. This includes investing the money you have in different asset classes, the money invested gives you a return in the future depending on the time period and terms of investment.
However, the wealth creation process will be most effective if started early as starting early yields you comparatively more returns. Another advantage of starting investments during the early stages of life is that it makes you achieve your goals faster.
Compounding the Key Factor!
Compounding is a concept that helps you build considerable wealth in the future and thus Compounding is always the key factor of wealth creation. The concept of compounding revolves around reinvesting the returns back, this helps investors to earn higher returns and leads to high wealth creation.
Another key factor is – the longer you invest, the higher will be the returns and thus the wealth-building.
Key takeaways points
- Set your financial goals.
- Choose the best investment plans.
- Increase your contribution towards investment with rising income.
- Review your investment portfolio annually.
- Investment management.
- Track the progress.
Here are some easy steps following which can help you create wealth over time.
Saving your hard-earned money is always the first step towards wealth creation. It’s common with most of the people that they save whatever they are left with at the end of the month; but this can’t help you to become rich even over a period of time.
The one who manages their expenses in a planned way so that you can save a particular amount at the end of every month can be a smart move though. Putting away the money you want to save in the beginning of every month can help you achieve this. Doing this helps you to manage your monthly expenses with the rest of the amount. On the other hand, it also helps you to review your spending habits and wealth building.
Invest your monthly saving
As said above saving money is the first step towards creating wealth but it’s true that only saving money cannot give you the result that you want.
The money you saved needs to be invested in an appropriate portfolio to generate wealth for you.
To achieve your financial goals, now the investment has to be your second objective. You should define your financial goals, the investment amount, tenure, and then select the right investment tool for it. It sounds tough but trusts us it’s not a difficult task.
Investing in the right mutual fund as per the investment tenure of your goal doing SIP can help you, this is suggested because in SIP you can invest on a monthly basis and the investment can be started even with a low amount of ₹500. So, with SIP you can invest a portion of money which you save monthly.
But, for wealth building, it’s important to diversify your investment portfolio and invest in multiple schemes.
Increase your investment over time
Your salary doesn’t remain static for years, so why do your investments? It’s true with all of us that our salary increases every year, but that doesn’t mean that our expenses should increase. The increased amount in our salary should always be utilized wisely towards our investments. Increasing your investment in the same proportion as the rise in your level of income will help you to achieve your goals faster.
For example- suppose you got a 10% increment at the end of year, then what your next step should be to increase your proportion of investments by 10% in the coming financial year. Again, at year-end, if you get a 15% increment, then in the coming financial year your investments should rise by 20%. Doing his will not only help you to have control over your expenses but will also help you to grow your wealth.
Another example is –
Suppose your salary is increased by 15,000 per month, you have 3 ongoing financial investments – A, B, C. For A, you have a SIP of Rs 3000. For B, its Rs 5,000 RD. And C includes saving for life insurance and health insurance premiums which is 50000. So on getting a hike of 15,000, your investments should also increase by 15,000. Now you need to plan that increasing contribution to which part of your investment will give you more returns. As Health insurance, life insurance and term insurance premiums are fixed and the interest earned on SIP for loan term investments are higher, then considering this, it will be a great idea to increase your contribution towards SIP and then towards RD. It will also be a good idea if you open an NPS account. Doing will help you create wealth and save on your taxes as well.
Lump-sum Investment whenever it’s possible
Lump-sum investments should be made whenever you receive a bonus or a maturity amount for any of your investments. Splurging the entire amount will just help you to get temporary happiness but if you invest that amount at a proper place then it can yield you good returns in near future.
You can use your extra money for mutual fund investment in equity mid-cap and equity small cap where you can put a lump sum money. This will help you to grow your money faster and achieve the goal before time.
You can also use this to pre-pay your existing loans such as a home loan or car loan.
It’s high time for avoiding the actions you need to take towards wealth building. So, let’s just start now, set your financial goals and start taking proactive steps towards it. Stick to your commitment and you will lead to financial success.