Seven Laws of Wealth Creation

The seven laws of wealth creation are as follows:

1. Make money honestly

“Honesty is the best policy” (Benjamin Franklin)
“Honesty is the first chapter in the book of wisdom” (Thomas Jefferson, 1819)
“I believe it is a religious duty to get all the money you can, fairly and honestly; to keep all you can, and to give away all you can.”, John D. Rockefeller (1928)

Making money honestly is the very first step in the process of wealth creation.

 2. Do not lose money

– “Don’t lose money . Never forget the first rule “, Warren Buffet
– “Return of money is more important than return on money”, Will Rogers

Not losing money is the next most important step.

3. Penny saved is a penny earned.

This goes to the very heart of the the principle of time value of money. Suppose 10 years ago, you had Rs 10,000 that you could have spared. There are two things you could have done with the money:

a. used it to purchase a flat-screen Television, or

b. invested that amount in a Fixed Deposit or in equities of good companies

By using Option “a” you would have converted an appreciating asset into a depreciating asset, whereas by using Option “b” the initial Rs 10,000 could have doubled to Rs 20,000 in case of a fixed deposit or have multiplied as high as 10x times to Rs 1 lakh in case you had invested in shares of good companies.

Every saved rupee counts.

4. Waste not, want not.

Those who do not waste money now, would later, when they look for resources, still have the unwasted money at their disposal.

5. Allow compounding to work.

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein

Allow the money to grow by investing prudently.

6. Trust but judiciously.

“Believe none of what you hear and half of what you see.”, Benjamin Franklin
“Where large sums of money are concerned, it is advisable to trust nobody.”, Agatha Christie, Endless Night (1967)

This step is about finding out ways of retaining money that you have made.

7. In investing, nothing is certain.

I want to live happily in a world I don’t understand. (Nassim Nicholas Taleb, 2012)

 

Subhodeep Mukhopadhyay

I am a Management Consultant in the Education Sector. In my previous corporate career, I have worked in Banking, Private Equity and Software industry. I am an MBA in Finance/ Computer Engineer and enjoy doing equity research and financial analysis in my free time.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>