Summary

Wealth creation is essential to achieve financial objectives and prepare for major life events. But what does wealth creation mean? How to create wealth? Read this post to find out.

Content

What is wealth? The Cambridge dictionary defines ‘wealth’ as an abundance of valuable material possessions or resources. For most of us, it translates into an abundance of money.

In the financial sense, our wealth can be said to be the total sum of our savings and investments minus the liabilities like outstanding loans.

However, the savings and investments don’t accumulate on their own. We need a wealth creation plan to achieve our financial objectives and live a comfortable life. But what does wealth creation mean? Why is it important? Let’s take a look-

What is Wealth Creation?

To create wealth, we cannot simply rely on our earnings. While our income from a job or a business, will mostly increase with age, so will our responsibilities and expenses. Thus, we need to create other sources of income to create more wealth.

One of the ways to do this is by investing your savings to generate returns. So, the meaning of wealth creation is to invest your savings based on a strategy built as per your objectives and risk appetite.

Also Read - 5 Clever Ways to Invest Your Surplus Cash

What is the Importance of Wealth Creation?

Several reasons emphasize the importance of wealth creation in our lives. For instance-

• Wealth creation helps you achieve your financial goals.

• It can offer an additional source of income, enabling you to generate more income throughout your working life.

• A wealth creation plan can provide a steady flow of income when you’re no longer working so that you can continue offering yourself and your loved ones adequate security and comfort.

• With wealth creation, you can live a financially independent life after retirement and spend those golden years enjoying things you love.
  
  Read more - Your Financial Goals Planning

How to Begin with Long-Term Wealth Creation?

Now that you know what is the meaning of wealth creation, let’s take a look at some tips to do it the right way-

• Start with Your Financial Objectives

  Begin your wealth creation journey by setting realistic financial goals and appropriate timelines for achieving them.

• Compounding is Your Friend

  Compounding is highly effective in wealth creation. But the magic of compounding works best when you remain invested for a longer horizon. So, if you are serious about wealth creation, start saving and investing whatever amount you can today.
  Read about what is the power of compounding

• Aim for Diversification

  Diversification is key to minimizing investment risks. So, spread your investments across instruments like equity, debt, gold, real estate, etc.

How to Create a Wealth Creation Plan?

As factors like income, objectives, risk appetite, etc., vary between individuals, every wealth creation plan should be custom-built for the best results. Here are some tips to help you create a custom wealth creation plan-

• Based on your objectives, decide how much you’ll have to save every month.

• Understand your risk tolerance level to choose appropriate investments.

• Thoroughly understand all the investment options, especially their risk profile, before investing.

• Review the wealth creation plan regularly and make changes if required.

• You can also consult an investment advisor for personalized assistance.

How to Choose the Right Investment for Wealth Creation

With all the various investment options available in India, how will you select the right investment as per your wealth creation strategy? Focus on these four factors-

• Your Age

  Investors in their 20s and 30s with long-term objectives have more time to remain invested. Thus, they can have a more aggressive investment portfolio with decent exposure to direct equity or equity mutual funds. On the other hand, if you’re nearing retirement, it may be a better idea to consolidate and opt for the less-risky albeit lower-return potential investments.

• Your Risk Appetite

  Volatile assets like equity can be ideal for investors with a higher risk appetite. But if you’re a conservative investor, your portfolio could be more debt-based.

• Your Investment Objective

  You can find online calculators that could assist you in choosing investments as per your objectives. For instance, let’s assume you’re 25 years old and would like to accumulate Rs. 5 crores when you retire at 60 years by starting a monthly mutual fund SIP.
  
  Using a SIP calculator, here’s how much you’ll need to invest every month-
  
  

  Investment Duration	Expected Annual Returns	Monthly SIP Amount	Investment Value at 60
  35 years or 420 months	6%	Rs. 37,000	Rs. 5,10,58,274
  35 years or 420 months	7%	Rs. 30,000	Rs. 5,15,71,761
  35 years or 420 months	8%	Rs. 24,000	Rs. 5,17,37,588

  Disclaimer: This is for representation purposes only. Returns are subject to risks. Always weigh your risks and read the scheme-related information carefully.

You can use such online tools to choose investments that align with your investment horizon and objectives.

Know more about Wealth creation solutions

How Can You Achieve Your Wealth Creation Goals?

Here are some tips to take you closer to your wealth creation goals-

• Try to be aggressive with your savings strategy by cutting down discretionary expenses so that you’re left with more money to invest.

• Increase your investment as your monthly income rises with age.

• Invest in products like health insurance and life insurance for added financial security.

• Build an emergency fund to ensure unexpected expenses don’t hamper your long-term investment journey.

The Right Way to Create Wealth and Prosper

Wealth creation is critical to living a financially secure and comfortable life. It allows you to live more confidently and actively pursue all your dreams. Now that you know what is wealth management and creation, use this knowledge to your advantage and start working towards your objectives at the earliest.

You can also consider professional assistance to create a wealth creation plan that aligns with your goals and objectives.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.