All of us want to be rich. How many of us want to grow our wealth? It is very important to understand the difference between being rich and being wealthy at the very onset of your investment journey.
Being rich involves making money, showing that you have money, working for money, and thinking about money. Isn’t that what you consider when you see a rich person?
Being wealthy doesn’t just concern money. A wealthy person probably doesn’t think about money at all. For a wealthy person, his/her priorities become their health, their family, increasing knowledge and wisdom, having the willingness to be a philanthropist, and understanding the value of life. Money comes last. Because their life’s philosophy was never about working for money and money alone. When you focus only on money, you will leave everything else to put your mind, body, and soul to achieve your targets.
What is Wealth Creation?
When you have a clear objective in mind about your investment, you have begun your journey of wealth creation. Without an objective, you can never create wealth. Your focus will always be to make returns and it doesn’t work that way. Let’s take this analogy. Two men want to build a mansion. That’s his goal. One builds his mansion on lower grounds, and the other one on high ground. And then comes flood and storm. The man who built his mansion on lower grounds gets washed away, but the one who built his mansion on higher grounds remains unaffected.
The question is why? If my goal is only to build the mansion, I will not have the time to think of situations like emergencies or create a safety net to protect in times of uncertainty. This is wealth creation! For what use is your richness, if it gets washed away?
How can you create wealth?
As mentioned before, wealth can be created if there is an objective. You want to start a 2000 rupees SIP. Why? What is the objective? If there isn’t any objective, I guarantee you, that you will pause your SIP the moment there is a requirement of funds.
The second way to create wealth is to always have an emergency fund in place. What is an emergency fund? It is the fund that you keep aside only for a situation when the sky falls on your head – job loss, health crisis, a friend needs money, etc. So, your emergency fund is a corpus of 6 months at least – the six months of corpus can either be equivalent to your six months of take-home salary or six months of your fixed expenses ( loans,emi, bills, children’s tuition fees). Before beginning your investment, this is what you should keep ready. It is okay if it takes at least 1 to 1.5 years to create an emergency fund. Once an emergency fund is there, you will not have to pause your monthly investment if an emergency hits you or your family. The worst thing that can happen to your investments is if they are paused or redeemed.
The next step is to have health insurance for yourself and all your family members ( apart from your company’s mediclaim). A study proved that it will take only one health crisis in an Indian family to be completely broke! Now why is that? Because we forget the fundamentals of wealth creation. We straight away kick off with our investments. You cannot run if you don’t know how to walk! We need to have the basics right! So set up health insurance based on the place you stay. For a middle-class family, a mediclaim cover of 50 lacs should work. But again, you will know best what works for you. You can always increase your insurance coverage every year based on your salary increase.
Now, comes the final step of wealth creation (financially). Investing! Remember, investing, and not trading! Start your monthly SIP. As a healthy practice, try to invest at least 20% of your in-hand salary. You can do it as you like as a beginner. You can buy stocks with that amount, invest lumpsum into mutual funds, or fix that amount for monthly SIP. But the catch is, do not redeem or sell off anything before 5 years. And when I say sell or redeem I say this only to rebalance or churn. Wealth can never be created by traders. I believe this. You can disagree with me for sure – no issues with that. Do not sell your stocks or mutual funds after hearing about any news or social media posts. Please!
The next way to create wealth is to invest in yourself. Try to learn something new or upskill yourself in the field in which you work. It is important! Why do you ask? It is because, the world is changing, Hence, if you wish to remain in the grind and not be kicked off from your job, you better upskill yourself. Also, upskilling yourself gives you the confidence to be calm even if there is a possibility of losing your current job for whatsoever reason. Because you know that you have the certified skills to get a better job with a better package.
We will learn about the non-financial aspect of wealth creation in a separate blog.
