Who is a wealthy person? A truly wealthy person, I believe, is someone who has enough money so that he can work because he wants to, not because he has to. A wealthy person can walk away from a job at any moment and still lead the life he wants. With everyday intentions, planning and discipline, you can build wealth. Here are four ways to start:
1. Establish Good Savings Habits
Good habits lead to good outcomes. Creating wealth isn’t about hitting the boundary, it’s about getting into the consistent habit of saving. When you’re younger and just starting out, you may not be able to save a lot, but save anyway. Set a percentage of your income to save, say 10%, not a fixed amount.
Saving just Rs 1,000 out of every Rs 10,000 will put you at the driver’s seat in the future. Similarly, when you earn more in the future, you will save more in rupee terms, You can even increase that percentage of saving slowly over time. This one decision has the power to set you up for financial success or failure.
2. Invest a part of your income
The act of saving is amplified when you invest those savings. Investing does not mean keeping your cash in a savings account earning nothing. Investing is putting your money into a well-diversified portfolio of stocks, bonds, mutual funds, ETFs and allowing the growth to compound over the long term. Compounding is arguably the most effective way to build wealth. The reason why this is such a powerful wealth building tool is because the interest you earn on your money also earns interest.
I see too many people who have an un-required amount of cash as part of their net worth. While having enough cash is important for emergencies, cash will not make you wealthy. In fact, when inflation is factored in at, say, 6%, by holding onto cash, you are not even breaking even and you are in fact losing due to the purchasing power of rupee going down in real terms. The younger you start saving and investing, the more time your money has to compound year over year. Let your money go to work for you and give it the chance to multiply over your lifetime.
3. Delay Spending Gratification
In addition to establishing good saving habits, it’s just as important to exercise smart spending habits as well. It may take some time to adjust and form smarter spending attitude. Hence, I love this quote by Warren Buffet, “If you buy things which you don’t really need, one day you will have to start selling things which you actually need.” Credit card has made it much easier to spend money, even if you don’t have the actual cash to cover the expense, which can quickly lead you into high-interest debt. Therefore, be mindful about your purchases and delay gratification until you know you have the means to cover the cost. When you already have smart saving habits established, it makes delaying gratification a little more pleasurable because you will actively be saving for that car, those concert tickets, or the vacation you really want. It’s not that you won’t attain what you want, but with smarter spending behaviors, you won’t compromise your financial security just to get something immediately.
4. Set Financial Goals and Be Intentional
You’ll be able to achieve your financial goals faster only if you have financial goals and you make intentional financial decisions. Just like attaining a certain physical fitness level, setting goals, being intentional and taking action all play a crucial role in determining your success. Before you make that next purchase, think to yourself: “Is this purchase in line with my goals? Will I be closer to my goal if I don’t make this purchase?” It’s a simple ‘yes’ or ‘no’ answer that should make your decision easier.
When it comes to your finances, building wealth is possible when you take action to secure your financial future and take advantage of wealth-building tools that passively grow your money over time. Your long-term financial success isn’t decided in an afternoon; it’s determined by the financial choices you make today and every day. So start making financial decisions that help you build lasting financial independence. The earlier you start, the more time is on your side to build long-term wealth.
(By Abhinav Angirish, Founder, www.investonline.in)