The most important things in life are often simple to understand but hard to implement. The principles for building your wealth are also one of those things that take years of patience and discipline. But their way there is almost intuitive and simple.
1. Start saving and investing early.
The earlier you start saving and investing, the more time your money has to grow and compound. This means that even if you can only contribute a small amount initially, it can make a significant impact on your wealth over time. For example, if you invested ₹1,00,000 initially with a compounded interest of 10%, by the end of 5 years, you would have ₹8,05,255.
| Year | Opening balance (₹) | Investment (₹) | 10% Interest (₹) | Closing balance (₹) |
| 1 | 1,00,000 | 10,000 | 1,10,000 | |
| 2 | 1,10,000 | 1,10,000 | 22,000 | 2,42,000 |
| 3 | 2,42,000 | 1,21,000 | 36,300 | 3,99,300 |
| 4 | 3,99,300 | 1,33,100 | 53,240 | 5,85,640 |
| 5 | 5,85,640 | 1,46,410 | 73,205 | 8,05,255 |
2. Set financial goals.
To effectively build your wealth, it is important to have a clear understanding of what you are working towards. Whether it is saving for retirement, buying a house, or paying off debt, having specific financial goals can help you stay motivated and focused. Goal-based investing has advantages since, life’s expenses are not linear – medical expenses, children’s education, children’s marriage, and down payment for house and car are large expenses that can be planned to reduce the cost of capital.
3. Budget and track your expenses.
Building wealth requires managing your money effectively, and one of the best ways to do this is by creating a budget and tracking your expenses. This will help you understand where your money is going and identify areas where you may be able to cut back and save more. Always remember, money saved is money earned.
4. Make smart financial decisions.
Building your wealth is not just about saving and investing, but also about making smart financial decisions. This includes choosing the right financial products, such as credit cards, loans, and investment accounts, as well as negotiating for a higher salary or lower prices when appropriate. Understanding the financial instruments well before investing in them, helps keep tabs on expenses via fees.
5. Diversify your investments.
Diversifying your investments can help mitigate risk and increase your chances of success. This means not putting all your eggs in one basket, but rather spreading your money across a variety of different asset classes, such as stocks, bonds, and real estate.
6. Educate yourself about personal finance.
The more you know about personal finance, the better equipped you will be to make informed decisions about your money. This includes understanding basic financial concepts, such as how to invest in assets, compound interest, diversification, and risk management. You are your greatest investment – yes better than the ones you make in stocks and mutual funds.
7. Seek professional advice.
While it is important to educate yourself about personal finance, seeking the advice of a financial professional can also be beneficial. A financial advisor can help you create a customized financial plan and provide guidance on specific financial decisions. Financial planning is crucial to factor in life events, have emergency liquid funds, and earn maximum returns from your savings.
8. Be consistent and disciplined.
Building wealth requires consistent and disciplined saving and investing. Wealth-building habits include setting aside a portion of your income on a regular basis and sticking to your financial plan even when faced with temptation or setbacks. This is the key to financial success. Consumerism is designed to keep pushing us to buy things that we do not really need. Keep an eye on your wants versus your needs.
9. Have a long-term perspective.
Building wealth is not a get-rich-quick scheme, but rather a long-term process that requires patience, discipline, and perseverance. It is important to keep this in mind and not get caught up in short-term market fluctuations or temptations to spend money on unnecessary or impulse purchases. Wealth creation is a process of compounding over time, where your money works for you rather than you working to actively earn it. Learning how to automate your finances is the trick to creating long-term wealth.
10. Practice gratitude and mindfulness.
Building wealth is not just about accumulating financial assets; it is also about finding happiness and fulfilment. Practising gratitude and mindfulness can help you stay focused on what is most important and cultivate a sense of contentment and well-being, which can in turn support your financial goals.
