source: downtoearth

Although wealth creation may look simple, it requires a lot of practice and wisdom to overcome common investment obstacles. Nevertheless, many people claim to know the basics of generating a pool of wealth after learning the various investment options and trying them out for themselves.

In many cases, their activities either invite miserable financial loss or the invested pool remains stagnant, eventually demotivating the person. To learn some practical money management tips, learn the 17 principles of creating wealth to develop insights about effective post-retirement plans.

Nowadays, getting caught amongst the numerous wealth-building articles surfacing over the internet is usual. However, reading too much and using multiple strategies can overcomplicate one’s life and increase the chances of financial loss.

Here is all you need to learn about principles of wealth generation, no matter when and where you are.

1. Spend Less Than You Earn

Most successful people prefer living a modest life as it helps them save money which they can invest in valuable assets. Whatever our present financial status, buying luxurious products or opting for an expensive tour tempts us.

If you can control such costs and focus on the bare minimum, this will lessen your financial stress. Eventually, you will gradually get inclined towards buying assets which will make money over time.

1. Stay Patient With Your Investments

As young investors though managing funds can be a challenge when planning expensive purchases, these people have time on their side. On the other hand, older investors having sufficient funds, can only invest for a short time to fulfil their aspirations.

1. Avoid Comparison With Peers

Financial goals are different for everyone, and salaries are variable for each employee within an organisation. Therefore you must not compare personal achievements with your peers as that will keep your mind occupied all the time. It hampers one’s productivity at the workplace, which directly impacts income potential and hinders the wealth creation process.

1. Stay Clear About the Purpose of Wealth Generation

Being hardworking to become rich is not always the best motivating factor. Therefore, it is necessary to personalise goals as you will require staying focused for a long time.

More clarified goals like saving money for a new flat or strategising plan for the post-retirement period will instill a sense of financial discipline. This way, you can estimate how much you have to save and allocate your hard-earned money accordingly in various monthly segments.

1. Avoid Shortcuts

While discussing the traditional principles of wealth management, one must know why choosing a preferable investment instrument requires adequate knowledge. It will help if you are patient and expect exponential wealth growth post-compounding.

Numerous well-proven steady wealth-generating options, like mutual funds, gold bonds, ETFs, FDs, etc., come with varied risk-reward ratios. Instead of issuing funds in these tested investment tools, if you choose new alternatives like cryptocurrencies or NFTs, it may be counterproductive.

1. Grab Learning Opportunities

No wealth generation journey can succeed if the person lacks money management proficiency. Therefore, it is essential to understand how different financial products work, and the learning process should not stop at any point in your life.

Previously getting access to quality education was challenging as you had to rely on books published by successful investors. But now, many financial websites are giving you live updates and sharing resourceful blogs that are helpful for all levels of retail investors.

1. Look For Generating New Revenue Streams

Instead of only relying on methods of generating passive income, you should concentrate towards mastering new skills. It will lead you to a superior position compared to others striving to pile up their wealth.

Monetising your skill set should be the next component in your to-do bucket, as getting that right will give a progressive boost to your wealth creation journey. It is ideal to consider the costs associated with learning as an investment, as this will motivate you to generate a positive ROI over the long term.

1. Seek Expert Advice

Among the 17 principles of creating wealth, we will emphasise this aspect as, for beginners, it is crucial to seek expert guidance if they wish to avoid financial loss. Professionals provide consultancy services to those who need clarification regarding investment elements.

These people diagnose various financial products in dedicated sessions and develop an idea about your income. Then, based on their expertise and market analysis, they suggest investment strategies with improved chances of success.

1. Bring Diversification to Investment Portfolio

As there is no way one can avoid risk, diversifying your portfolio is the only way to ensure optimal safety. No matter how versed you become regarding a specific investment type, there is always a chance of making a poor asset buying or selling decision.

Consider investing through multiple channels to ensure one or a few decisions do not crumble your entire wealth generation roadmap. For example, it is well-proven that the US fiscal deficit is beneficial to invest in gold. Similarly, there are other theories that you can take advantage of and add elements that will safeguard your overall investment portfolio.

1. Track Your Spending

Strategic financial planning is only possible with a rough monthly expense estimate. Ambiguity regarding such minute details vastly affects one’s savings.

Suppose you can figure out the primary spending and combine a precise estimation of miscellaneous costs. In that case, it will help you strike off all conspicuous consumption in the fastest possible manner.

1. Trust the Equity Market

Selecting the equity segment is the only way to beat inflation's threatening effects. Investing in this segment will help you benefit from compounding; thus, it is recommended to have an institutional mindset and stay invested for a long time.

Taking short-term chances will attract more significant risks as the market is volatile. If you are a beginner and fearful of the risks, consider choosing mutual funds instead of stocks. Here, qualified fund managers responsibly manage your hard-earned money to generate profits.

1. Use the Workplace Environment to Your Advantage

Many organisations provide post-retirement plans in the form of the National Pension Scheme (NPS) or Employee Provident Fund (EPF). If you get these benefits, do not hesitate to subscribe to such schemes, as they will strengthen your financial stability without requiring manual intervention. People often need to pay more attention to these policies as many prioritise liquidation over long-term benefits, which is not a financially sound decision.

1. Identify Wealth-Generating Patterns

Many technologies help us to predict market behaviour based on crucial parameters. Artificial intelligence and machine learning play a vital role in this regard. Top firms reach out to investing consultancies to benefit from these tools.

You can also utilise their services at customised scales to understand patterns and invest when others might be missing that opportunity to make future profits.

1. Maintain a Balance Between Saving and Spending

Again, if you refer back to the spiritual principles of wealth, you will find the well-known proverb, “Saving Honors God and Serves Others”. It generally ideates that though it may seem too self-concerned when someone decides to sacrifice some immediate enjoyment for future concerns, it is eventually the right thing to do.

You can recreate momentary experiences at a time when there are no budgetary constraints as such. But adjusting crucial investments or spending less on essentials can have a long drawn impact on one’s family’s lifestyle if done consistently.

1. Start Goal-Based Investing

This tip aligns with one of the biblical wealth creation principles – “Always have a plan for your investments”. Of course, all of us will agree that chalking out a monthly budget is essential, but it must also complement a clear vision of attaining specific goals.

You can automate goal-based investing by using relevant features in one or more of your investment accounts. Also, when you search for related helpful tools, you will likely receive insights from the experts regarding what type of investment will help you achieve the purpose faster.

1. Follow a Role Model

It is one of the most straightforward principles to follow and is well-established to improve one’s success as an investor. However, the most common mistake in following a role model is blindly following that successful person and trying to duplicate their investment portfolio to replicate their success.

1. Believe in Fundamental Factors

Investing in equity assets brings in a certain margin of risk. There is a famous saying, “With great risk comes great reward” therefore, evaluate your risk appetite, prioritise your goals and invest accordingly. Money management should not get influenced by the actions of closely related people, and you should believe in a proven process for long enough to see positive results.

Here we have discussed three simple steps one must follow to see their wealth growing over time.

Step 1: Start Saving Smartly

Most people spend whatever money they get at the beginning of a month buying items necessary for their living. Instead, a better approach would be to set aside the percentage of the money you wish to save and manage your overall expenses with whatever is left. In addition, of course, one should keep an emergency fund aside to meet unforeseen expenses or do prior planning to secure insurance policies.

Step 2: Convert Monthly Savings Into Sound Investments Through SIPs

Before starting this investing, one must be sure about their financial goals. Getting this first step right will help you decide the monthly budget for a particular SIP and select its tenure.

If you need help choosing the right mutual fund aligning with your goal, consider seeking expert advice. As humans, we have multiple goals meant to be met within various timeframes but planning for each must be done simultaneously. To achieve all of them without fail, start a SIP for each.

Step 3: Invest More Money as Your Income Increases

Most salary professionals receive a salary hike at least once a year. Suppose your income increased by 15% to what you used to get last year. Then consider investing 15% more in each SIP to experience optimised annual returns.

You should be knowing more than just the 17 principles of creating wealth to ensure long-term profitability. Besides knowing the prerequisites, it is even more critical to know the common mistakes to avoid ending up like one of the DIY investors who started their investment journey in a hurry but soon lost their enthusiasm due to successive loss sessions.

Common challenges you may face as a retail investor:

• Mistiming the Market

It is usual for newbie investors to buy a stock listing by analysing a few essential pointers. Such abrupt actions, in the beginning, may lead to loss. However, one will overcome this problem with growing experience. 

• Succumbing to Behavioural Biases

Investors often sell their holdings when their portfolio turns red. Sometimes another haste action leads to the unplanned buying of penny stocks, assuming the company will surely grow due to a boom in its sector. 

• Suffering Loss Due to Lack of Monitoring

When you invest in passive funds, you attract a more significant risk as the fund managers do not track the investments regularly. Thus when you are putting your money in these funds to save fund manager fees, it will be good practice to monitor the investment curves regularly. This way, even if there is a loss, you can withdraw the funds before inflicting more damage.

So, this brings us to the end of the discussion on the 17 principles of creating wealth. The main thing that one should understand before starting their wealth creation journey is that they must invest sufficient time in the market and gain practical experience before expecting optimal returns. Following the above measures, one can surely build up a significant amount of wealth during their lifetime.