Take these 3 steps to building wealth in 2022
The dynamics of long-term wealth creation differ significantly from the dynamics of wealth management. The first is to build a large body of money over time, while the second is to invest an already built body based on your risk tolerance and investment goals. A few people get rich off of “black swan” events (think – a lottery win, or a startup sold for millions or ESOPs cashed in), and they naturally grab the headlines. However, for most people, the path to wealth building is likely to be one of constant and arduous efforts to manage their spending and saving habits.
Live below your means
This is the most important “golden rule” in wealth creation, and it is difficult to adhere to in today’s era of aggressive consumerism. Conversely, many people unfortunately live beyond their means – and this vicious cycle of earning followed by debt service completely negates any chance of creating wealth from their savings. It is absolutely imperative that we live below our means at all times, so that there is enough left over to save in a consistent and non-ad hoc manner. As a general rule of thumb, aim to not spend at least 30% of your net after-tax income each month. Salary increases can be accompanied by lifestyle increases, but only to the extent that they do not compromise this ratio.
Long term = aggressive
It is not enough to just “not spend” a certain portion of your monthly income. As Robert G. Allen once said, “How many millionaires do you know who got rich by investing in savings accounts? I rest my case. In order to build wealth from your savings, you need to take a higher degree of risk – for example, funneling your savings into high-risk, high-yielding mutual funds instead of reserving fixed deposits. whenever you have a surplus left. on. Equally important is making this savings “automatic” through a monthly or quarterly SIP (Systematic Investment Plan). Finally, make sure you prioritize your regular savings more than your spending, by scheduling your direct debits at the start of your earning cycle. If you receive your salary on the 5th of each month, schedule your SIPs for the 7th, so that they are debited before your monthly expenses start.
Follow your instincts – but not recklessly!
Every once in a while, you might come across a potential investment that you know deep down will reap rich rewards. It can take the form of a brand new investment vehicle, a brilliant idea that requires seed funding, or a script that you are absolutely certain is about to be a multi bagger. . Faced with such a possibility, it is essential that you go ahead and speculate. After all, it’s those “off the shelf” investments that could add that essential “alpha” to your portfolio. However, learn the art of measured speculation. Invest 20 lakhs instead of 50 lakhs in the start-up. Start with the minimum ticket size for the private equity fund instead of going all out. Make measured, high risk / high return investments with amounts you can afford to lose. You never know which one could make you rich beyond your expectations!