What is wealth?


We all know how to make money, one way, or another. We earn money by doing jobs, business, investing, some win lotteries, some have really good relatives (boy, don’t we wish we all had those), some are just born rich and some make money by themselves. Whatever it is, we all strive for wealth. But what is wealth?

Well, it is just the end result of your accumulated income, savings, and return on investments and how well you have managed to make your money grow in India. It is something that gives you a feeling of financial security, when you actually stop fearing the day you won’t be earning anymore. In simple words it is your financial comfort zone.

But for a lot of us wealth creation in India is purely making more money. If I have more money than my neighbour, I am wealthy, if I don’t, I am not. This is not wealth. This is just a zeal or enthusiasm to earn more money and keep earning and then earning some more, and before you know it, most of our life has flown away in this race to generate wealth.

This is the primary reason we never feel wealthy. That brings us to our second point, our approach to wealth creation.

What is wrong with our approach to Wealth Creation and making money in India?

As I said above, we strive to earn money and not create wealth. Wealth is your financial comfort that will make sure that you have enough money to pay your bills, have food to eat and have a roof over your head, and allow you to enjoy your life in a ‘reasonable’ manner, anything more than that is great to have, but it is just bonus money.

Well, we all love bonuses but then the only reason we never feel wealthy is we never really stop to look at the money that we already have accumulated so far in life and how we can make it grow the right way. You will keep earning money as long as you can, and trust me you will make decent money. But the problem arises when we neglect the money we have and run after the money we don’t. That is when we start to think, our neighbour is wealthier than us, we are not wealthy at all, and all that negativity ensures that you never ever become wealthy.

So what to do to be wealthy in India?

Change your mind-set. If you feel you can meet your daily expenses, you can pay your bills, save some money and invest well to be able to have a decent corpus to meet the expenses of education and marriage of your kids; you have enough wealth. Trust me. But, it doesn’t mean you have to lay back and enjoy. No, keep earning money, but not run after it. You may feel that I am contradicting myself, but it’s actually simple what I mean.

Firstly, if you are earning, look to save a bit more. Invest, and by that I mean invest sensibly and don’t speculate or follow tips, learn to manage your own money and take steps towards your financial freedom. If you do this sincerely, you will be wealthy and have enough when the time comes. So instead of running after ‘More Money’, pause, and think of what are you doing with the money you have? If you can’t manage what you already have, you will, and I mean you WILL NEVER manage the ‘extra’ money you are trying to earn and hence you will NEVER be wealthy. Think over it.

Secondly, instead of running after money and focusing on how to make more money, focus on how to make others pay you more money. I did a post recently, on ‘what is your greatest asset‘, and I mentioned that your biggest asset is you, and your earning potential and nothing else. So basically if you upgrade yourself, you will upgrade your finances. So focus on how can you make yourself more valuable to your boss if you are in a job, and if you are in business, see how you can be more valuable to your customers and the money will come.

It is very easy to give examples of Dhirubhai Ambani and how he went from rags to riches, but very difficult to do what he did, he upgraded and self taught himself. He had no fancy degree, he had a vision and focus, and you know how the money followed.

Wealth creation in India, and making money, or making more money is different things. Your focus has to be on what you have and how to better it. You need to pause and slowdown if you have to, clear your mind, take stock of what options you have and then use your biggest asset, YOU, to generate wealth.

Earlier, the Better

It is often said that the earlier one starts investing, the better it is to grow your money. As with anything else in life, investing also benefits with an early start. The principle of compound interest works magic on building money.

When you begin your career it is understandable that the initial salary will be low. However, even small amounts of savings in good investments will help in slowly and steadily building your wealth.

For example, let us look at the case of Raj and Shyam. Raj who is 25 years old needs to invest Rs. 1,500 per month for the next 35 years to build a corpus of Rs. 57.4 lakhs at the return rate of 10% pa. Now Shyam who is 30 years old will need to invest close to Rs. 2525 per month at the same return to accumulate the same corpus after 30 years, assuming both retire when they are 60 years old. A difference of 5 years in investing results in a difference in savings needs of over Rs. 1000 per month over the entire tenure of investment. Hence remember to understand the power of compounding and start your investment plan early in life.

SIPs:

Another mantra to build your wealth is regularity and discipline in investing. Often, a break in investing plans disrupts your goals and hampers the growth of money. The best way to make sure you are not irregular in saving is by starting Systematic Investment Plans in good quality mutual funds.

Try and automate this so that you do not forget your monthly investments. Also, if at any point, you happen to miss investing in a particular month, make it up for this in the subsequent month by investing double the amount. You must also look at upping your investment amount gradually, as your income increases.

Long Term Investing:

Often, people complain that despite being regular in investing, they do not see a growth in wealth. This is because they withdraw the money invested frequently, not giving it a chance to grow. Remember that the longer you leave money invested in a good investment option, the higher it will grow due to the compounding effect.

Review Regularly:

Having said that, remember to regularly review your investments to assess its performance. If you find a particular investment giving you very poor returns, you must immediately withdraw your money from such an investment and invest in better performing assets. Also remember to track your investments regularly and modify your asset allocation pattern depending on your age and risk profile.

Keep Yourself Updated:

Another important thing to be remembered is make sure you have the required knowledge in an investment class before investing in it. For example, Priya had heard a lot about derivatives and how investing in derivative instruments gives handsome returns. However, she did not have any knowledge about this. Nevertheless, she blindly went ahead and invested a sizeable amount of her savings in various derivative instruments.