Much is said and done regarding wealth creation. Many have tried and failed at this procedure and many are still struggling. So WHAT is this wealth creation? Wealth building is an approach of collecting profit building properties over an extended period of time.
How do we create wealth?
Our goal in creating wealth is to satisfy our needs. Wealth is developed for many reasons, such as leading a comfortable and enjoyable retirement life, education, marriage, medical treatment, medical emergencies, buying a home, travel, etc. To meet these costs or achieve goals, it is required to allocate a sum to generate long-term wealth.
GAIN: The first step in the direction of wealth creation is making money.
KEEP: After that, we involve one of the most obvious components: savings. After that, we will certainly never be able to create wealth for ourselves if we don’t keep a specific part of our income. To create wealth, we need to reduce our current usage to meet future backups.
The pyramid above helps us recognize the actions associated with creating wealth.
1. Everyone should be aware of their existing network and also their monetary goals. It makes the task of creating wealth less complicated, in terms of how much we have and how much more is needed.
2. The next step is to eliminate any type of financial debt. Because unless we clarify our responsibilities, we won’t be able to enjoy the flexibility of using our properties.
3. Posting this step starts the real wealth building journey. We need to be well informed and also gain knowledge about money markets to optimize returns. Preparation, as well as the application of strategies, is necessary to create wealth.
4. As well as, finally, safeguarding our assets by stabilizing the portfolio and periodically rebalancing it. Although everything seems easy, it is not.
Choosing the right investment avenues, investing in them continuously for the long term, and balancing the portfolio from time to time makes the whole process very difficult. Let’s see why creating wealth is not child’s play:
Factor 1: Uncertainty of ongoing earnings
A government employee, who is not forced to face the uncertainties of job changes, layoffs, cuts, termination, etc., enjoys his position until forced retirement. But then only a handful of Indians have a government job, while others are in the private sector, where continued employment with a company is not guaranteed. There is another section of investors who are self-employed as entrepreneurs or professionals. The fear of cyclical or uncertain profits always hangs over them. Some may be lucky enough to generate equal and attractive income for themselves throughout life, but this is rarely true. Economic conditions, political situation, industry scenario and global markets are some of the many reasons that affect the certainty of regular income streams.
Factor 2: The investor may not be able to add the preferred amount each month for the duration of the financial investment
As we expand our costs, our expenses grow with us. The need for a lavish and lavish lifestyle could also affect financial investments to meet such expenses. One more factor is that the increase in the cost of living influences us all. The rates of solutions and products are increasing more and more, but our investment power is not in accordance with the increase in the cost of living. For this reason, even though we continue to generate regular income, the rising cost of living may not allow us to spend consistently.
Factor 3: Lack of understanding in investing
Some of us can be extremely hostile and also some of us can be quite traditional when it comes to choosing properties for financial investments. In order to increase returns, in addition to individual charm in the direction of financial investment, we must try to reasonably understand what suits us. The wrong financial investments can never produce excellent returns and can have a negative result on the wealth building process.
Factor 4: Investors May Be Disappointed With Fewer Early Earnings
The bottom line is that we can see the cash raise included in our financing for the duration of the financial investment, even though the returns are small. Due to the intrinsic nature of stock markets, market volatility would certainly take our financial investments on a rollercoaster ride many times, although past returns suggest that the ride ultimately ends on a higher slope in the long run.
However, top investor Warren Buffet has aptly stated, “Be greedy when others are afraid, and be afraid when others are greedy.” This statement can help most of us if we invest in stocks, especially when the markets may not be looking good. Control over fear and greed is very essential for long-term wealth creation.
Factor 5: Provisional withdrawal of funds by the investor
To obtain the desired corpus, we must not interrupt this regulated and ambitious cost-saving procedure. However, we tend to do it and mourn the inefficiency of our savings when the mistake is ours.
It is challenging, it is not difficult to create wealth. We have to overcome obstacles if we want to create wealth. We need to conquer our own anxiety and greed to build our much desired castle of wealth.
(The writer is the founder of Money Mantra, a personal finance solutions firm)
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Posted On: Sunday, January 02, 2022, 07:00 am IST