There are many paths to financial glory. However, if you look at the lives and works of the wealthy, you ll notice several characteristics they may have in common. They all took risks, they all excelled in their area of expertise, and they re all good at money management.
Let s take a look at the characteristics that will one day help you create wealth:
Developing new skills & knowledge
The wealthiest people in the world today are also some of the smartest. For example, Microsoft co-founder Bill Gates says he reads about 50 books a year. Constantly developing new skills and acquiring new knowledge is key to your personal evolution. It will help you move with the changing times, to tackle new challenges, and to keep producing desirable outcomes in your endeavours including the financial ones.
As the saying goes, nothing ventured, nothing gained. The higher the risks, the higher the possibility of the reward. This is especially true in financial matters. If you want your wealth to grow faster over the long term, you must be ready to venture it into riskier avenues.
Owing equity & real estate
The vast majority of the world s richest people get their net worth from their equity and real estate holdings. Often, the equity they own is in businesses they established and the real estate they own is inherited. However, you too can invest in equity and buy real estate to improve your net worth. Mutual fund investment is one of the best ways to buy equity. Real estate can be purchased through disciplined savings and through home loans. It s not enough to simply park your money in savings, deposits or PPF.
Developing multiple income streams
To become wealthy, it may not be enough to have a single stream of income such as your salary. One must consider developing multiple income streams to make faster progress. As I said in the point above, you can develop new skills and acquire new knowledge. Some of these skills and knowledge may be monetizable, which will allow you not just to progress in your career but open up the possibilities of new income streams.
Planning & budgeting
If your plan is to get wealthy, you ll need to take the steps necessary to become wealthy. Few people become rich accidentally. Wealth has to be earned and created through careful planning and money management. No matter your financial situation today, create a financial plan to help you save and invest more, spend less, and to make your money grow faster. When in doubt, consult a financial planner. Create a monthly and annual budget to identify your financial priorities so that you can finance your goals and avoid wasteful spending.
Saving before spending
Your biggest creditor is your own future self. Make sure you pay him before you spend your money on anything else. This means you must prioritise saving before spending. This is as important as paying rent or EMIs or buying groceries. In an ideal scenario, you must save at least 20% of your monthly income. If you develop this habit when you re young, it will create an excellent financial platform for your later years.
Never invest without a goal. Every investment you make must have a clear goal. This means setting your expectations in terms of investment returns, monthly contributions required, investment tenure, liquidity of the investment and risks. Without a clear goal, you ll not be able to identify the right investment instrument, which means you ll not be able to create wealth in an efficient manner.
Frugality is the quality of being economical with money. When you live frugally, you weigh your financial options well. You have identified your needs and wants. You know how to control your wants. You have the ability to strike favourable deals. You are forever looking to build assets and reduce liabilities. Your frugality ensures you save more, spend less, invest more, and create wealth faster.
Keep these ideas in mind as you set out on your wealth-creation journey. It will be a hard task, but getting your basics right is half the battle won.
(The writer is CEO, BankBazaar.com)