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Friday, November 18, 2016

5 Steps to Build Wealth and Grow it Over Time

Most people know how to earn money. Some become engineers, computer programmers, accountants. They earn a lot of money. Others become movie stars, sports stars, rock stars. They earn a lot more money.

Then there are doctors, lawyers, drug smugglers, terrorists, politicians. They earn a tremendous amount of money - mostly in cash. They try to hide it from the taxman in dubious overseas accounts and real estate deals.

This latter group is spending sleepless nights of late, as the Indian Prime Minister has declared a war on ill-gotten gains - first, through a self-declaration scheme, followed by demonetisation of high value bank notes.

Earnings don't necessarily lead to wealth creation. Why? Because most people spend what they earn, and save and invest whatever little they have left.

Wealth creation requires proper planning, systematic investing in different assets according to the plan, and allowing compound interest to do its magic by investing for the long-term.

So, how should you get started? Here are 5 easy-to-implement steps:

1. Get in touch with a good financial adviser to make financial and asset allocation plans according to your earnings, financial goals and risk tolerance. You can do this yourself - but it may be better to seek the advice of a professional first.

2. Save first and spend later. From your financial plan, you will know how much you need to invest every month to achieve your goals. This amount should be invested first before you spend a single Rupee.

3. Live within your means. Whatever is left after investing should be your spending ceiling every month. That means you can't resort to debt - of the credit card or EMI variety. Already bogged down with EMIs? Pay them off early.

4. Invest regularly and consistently. This may pose problems if your earnings are irregular. All the more reason for you to be more disciplined about your planning, saving and investing.

5. Have a long-term view. Don't get swayed by short-term fluctuations in the prices of your assets. The longer the duration of your systematic investing, the greater will be your wealth.

Read more in this article by Diane Manuel in investopedia.com.

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