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10 Steps on How to Build Wealth
Table of Content
The answer to how to build wealth is the following steps. Follow the building wealth process to grow your money and become rich eventually.
Create a Financial Plan
The first step in how to build wealth is creating a strong financial plan. You will understand your current income, expenses, and the disposable funds left for investment. You gain motivation for saving and investing only when you have a defined purpose.
Is it for a peaceful retired life, for higher education of your children, the marriage of your children, a family holiday, owning a house, etc? Before understanding how to build wealth, you should analyse how much and when you need funds and set a time horizon for each goal.
Create a Budget and Follow
Creating a budget is an integral part of financial planning for wealth. To do this, you first need to understand where your money is spent. To increase disposable income, you either cut down on expenses by eliminating the unnecessary ones or find alternative resources to supplement your income. Deploy the residual income in funds that align with your goals and risk tolerance.
Create Your Emergency Fund
Besides budgeting for wealth building, creating an emergency fund is critical for a seamless ‘How to create wealth’ journey. The emergency fund you create should be adequate to take care of 3 to 6 months’ living expenses. The funds should be easily accessible while it is earning some returns.
So, park the funds in a high-yield savings plan so that they are easily available for unforeseen expenses like medical emergencies, small repairs for your home, car repairs, etc.
Set up Automatic Financial Management
Automating your funds' management will ensure that you neither miss your utility bill payments nor forget to set aside funds for savings. If you are always wondering, “How can I create wealth?” then this is one step that keeps your wealth-creating efforts on track.
This strategy works well, especially if retirement planning is your goal. The amount you wish to invest in a retirement plan gets deducted automatically every month. This approach helps save small amounts effortlessly to create a huge corpus for financial freedom post-retirement.
Control Your Debt
Incorporating debt management strategies in your financial planning will enhance the resources for investing and accelerate the ‘How to create wealth’ process. Low-interest debts like home loans that help asset creation are still fine, but work towards clearing high-interest debts like personal loans or credit card dues on a priority to reduce the cost of your debts.
If how can I build wealth is your question, becoming debt-free should be your goal to progress rapidly in the financial growth journey.
Contribute the Maximum to Your Retirement Savings
Prioritise retirement planning and contribute maximum to pension plans like the National Pension Scheme, EPF, and so on. Contributing small amounts as soon as you start a career is a prudent way of investing for long-term wealth creation.
It amounts to one of the smart financial decisions, as the power of compounding will eventually turn the contributions into a huge corpus.
Spread Out Your Investments
How to create wealth smartly? This is what we ask ourselves before beginning the journey. Diversifying your portfolio is smart financial planning. Spreading the risk will help manage your funds by balancing the risks with rewards. Have a mix of high-risk, medium-risk, and low-risk assets in your investment plan. Risk management in wealth building is essential to safeguard your savings.
Increase Your Income
When it comes to the idea of how can I build wealth, increasing your income to have more resources to enhance investments is imperative. Allotting any additional income like salary increment, bonus, or incentive to a retirement plan, clearing high-interest debts, or upping the emergency funds are ways of steering towards wealth creation.
If you have any passive income ideas, employ them to supplement your income. Also, you can start a side business with your skills to enhance your income. Deploying atleast 50% of the income rise towards retirement plans is recommended to maintain your existing lifestyle even after retirement.
Save Consistently
A single strategy for how to create wealth does not work for all. However, consistency in savings works. Investing in stocks may work for those who understand market trends well, and low-risk funds with guaranteed income work well for those who are risk-averse and interested in capital protection rather than returns.
You can also utilise financial advisor guidance to progress in the right direction if the thought of how do I build wealth overwhelms you. Whatever the case may be, consistency is pivotal for any investment plan to work.
Review and Adjust
Review and readjusting are important for how to create wealth, irrespective of the wealth creation strategies you choose. The market trends keep fluctuating, and so do your financial goals.
You should periodically assess how your investments are performing considering the market trends and rebalance them to align with your risk tolerance levels and goals.
How Can I Create Wealth From Nothing
You feel it is futile to think from the angle of how to create wealth if you are living paycheck to paycheck and have nothing left for savings. But that is not the case. You assess your current financial health. Evaluate your income and expenditure. See if you can cut down on unwanted expenditures and create investing resources. Invest smartly and watch your money grow.
Here are some wealth-building ways that can help you accomplish your how do I build wealth goal.
Building Wealth in Your 20s
Building wealth in your 20s may seem too far-fetched. In reality, this is the ideal time to start your wealth-building journey. Your income may not be that great, but your financial commitments are also lower. You will be single and will not have too many financially dependent members.
If you manage to live a simple life and not splurge all your income, you can have enough resources to invest. Even though you start with small investments, with time to your advantage, you can stay invested for longer periods, and the money will work for you to create a substantial corpus.
Building Wealth in Your 30s
In your 30s, many of you will have stepped into your next life stage. The responsibilities increase, and it may not be easy to set aside some amount for savings. However, you still have time and experience to your advantage. Evaluate your expenses, curtail them as much as possible, and utilise the surplus to invest smartly to get high returns. Also, contemplate developing skills that open high-paying job opportunities.
With an option to choose longer investment periods, you can utilise insurance for wealth protection. Buy an insurance plan like ULIP that has both insurance and investment components for a longer term. With a dual advantage of higher coverage for lower premiums and better returns by staying invested for a longer period, building wealth in your 30s becomes easier.
Building Wealth in Your 50s
Your income will reach greater heights in your 50s, and you can leverage the resources to create wealth. If you have already commenced your wealth creation process, you can progress better with the enhanced income. However, for some reason, if you have not started investing, you should revisit your current financial situation and understand what has stopped you from saving and creating a corpus for your financial goals.
Tweak your lifestyle a bit and think about investing in the future. If the process of how to create wealth confuses you, you can seek the advice of a professional and kickstart your financial journey.
What are the Common Mistakes People Make When Trying to Create Wealth?
Not all individuals succeed in creating wealth with the available savings. The reason is that they fail to follow the strategy that leads to wealth creation. The common mistakes that people make when trying to create wealth are:
Not Having a Plan
A financial plan is a road map to wealth creation. It helps assess your current financial standing and make changes to reduce your expenses and create a surplus for savings.
Setting financial goals and being clear about where you want to be economically in the next few years motivates you to save and invest. Whatever your goal may be, without a proper plan, your financial future is uncertain.
No Tax Planning
If you do not have a tax plan, you end up paying heavy taxes. Tax planning makes a huge difference. You should invest in tax-efficient plans and avail of deductions and exemptions to reduce your tax liability. This helps maximise your savings and progress steadily towards building wealth.
Ignoring the Outcome of Investing
Your income and savings alone cannot make you rich. You have to grow your savings to become wealthy. If you ignore this fact, you are making a big mistake. Inflation will diminish your savings in no time, and you may end up in a financial crisis. Investing your savings allows your money to grow.
You can invest in stocks, mutual funds, fixed deposits, pension plans, etc, depending on your risk appetite.
Not Expanding Income Sources
A single income source sometimes leaves no scope for savings. If becoming wealthy is your aim, you should consider parallel income streams. Alternate income sources save you from a financial crisis and also help you head towards financial freedom by providing means for investment.
Not Open To Risks
Some individuals are sceptical about investments. It could be a lack of understanding and judgement or fear of losing that holds them back from investing their savings. There is a certain amount of risk involved in investments. However, there are ways to overcome these risks.
Consult a financial advisor and diversify your portfolio to balance the risks and minimise losses. If you are completely risk averse, you can invest in schemes like EPF, National Pension Scheme, PPF, or Fixed Deposits that provide guaranteed returns. However, staying away from investment is not a smart move.
Summary
How to create wealth is one aspect that every one of us ponders about. It is no rocket science but involves concrete financial planning. Understand your current financial situation and balance your income and expenditure to create a surplus and set it aside towards savings. Invest the savings prudently in various plans to align with your risk tolerance level and financial goals. Starting early in life has an advantage, as you can stay invested for a longer period and earn higher returns with the power of compounding. The rate at which you create wealth depends on your investment acumen.
FAQs on How To Create Wealth
How can I start investing to create wealth?
You should follow a systematic strategy to start investing to create wealth. To begin with, you should set financial goals, and retirement planning should top the list. Set a time horizon for each goal. You should then choose plans that suit your financial goals. Diversify your portfolio to balance the risks and minimise losses. Revisit your portfolio and adjust it according to market fluctuations and your changing goals.
What is the fastest way to build wealth?
The fastest way to build wealth is by following the steps given below:
- Save consistently.
- Create a diverse portfolio.
- Increase resources through passive income.
- Clear high-interest debts.
- Choose tax-efficient schemes and utilise the savings for further investments.
- Review your portfolio regularly and adjust them according to market fluctuations and your goals.
Should I hire a financial advisor to help create wealth?
Hiring a financial advisor will help create wealth if you are a novice in the investment field and the idea of how to create wealth confuses you. You get expert advice and personalised guidance. Proper risk management strategies and appropriate financial decisions navigate you in the right direction.
What are the basic steps to create wealth?
The basic steps to create wealth are setting financial goals, understanding the current financial situation, creating a budget, building an emergency fund, investing for the future, and reviewing and adjusting.
Is creating wealth possible without a high income?
Yes. Creating wealth is possible without a high income. Save regularly and invest safely to keep the savings intact. Start early so that even small savings can create substantial corpus with the power of compounding. Draw a line between needs and wants to spend wisely. Manage debt to enhance resources for investment. With proper financial planning and prudent investment, you can create wealth even with a low income.
Related Articles:
- Wealth Management - Definition and Meaning
- 6 Wealth Creation Ideas for Safe Investments
- Financial Planning and Wealth Management
- Is Wealth Creation most important goal of Investing?
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Francis Rodrigues
Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.
Written By:
Vishal Subharwal
Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.
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HDFC Life
Reviewed by Life Insurance Experts
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This material has been prepared for information purposes only, should not be relied on for financial advice. You should consult your own financial consultant for any financial matters.
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