Five Key Steps of Wealth Creation

Wealth creation is serious business and involves a lot of hard work, passion, perseverance and a relentless obsession for knowledge. In this article I shall discuss the 5 key steps of wealth creation.

It is a long arduous journey, fraught with temptations, obstacles, failures, risks, successes and about everything in between.

Throughout this sojourn, one must maintain stoic calm and never deviate from the process of wealth creation.

In the Bhagavad Gita Lord Krishna instructs Arjuna to remain unfazed and unaffected by the impending war. In the same way an investor must learn to accept wins and losses, and prosperity and devastation with equanimity.

At the end of the day, the focus must be on the process of wealth creation. Results will naturally follow.

The 5 Key Steps of Steps of Wealth Creation are as below.

  1. You need to earn money but with honesty and integrity. This is the most fundamental step. Without this basic step, there is no going forward.
  2. Save money. Savings of about 33% of one’s income is a good start. If you spend more than that, you will not have enough to lead a comfortable life when you are middle-aged. Shri Pattu suggests one to save at least as much as they spend. In other words savings should be 50% of one’s income.
  3. Do not spend money on frivolous items and do not waste money on unnecessary things. A little bit of luxury or splurging once in a while is fine, but one must learn to draw a line between little bit and excessive. Frugality is the bed-rock of successful wealth creation.
  4. The next step is to find out ways by which one can ensure that they do not lose all or part of their accumulated earnings. The common ways in which people usually lose money are as below.
    • Overspending: Overspending or buying something exorbitantly priced, and more so if one is using a loan to finance the same.
    • Mis-allocating Capital: Putting money in some scheme which he does not understand, and where he ends up losing his entire capital.
    • Through Inflation: Through inflation eating away at the buying power of money. If there is a general increase in price levels (inflation) of say 10%, what used to cost Rs 100 might end up costing Rs 110 at the end of the year. So someone might, for no fault of his own, lose 10% of his wealth to inflation.
    • By Taxes: Through taxes (both direct and indirect) because government might end up taking away upto 40% of someones earnings. There are various ways to reduce or prevent the loss of wealth, and we shall deal with them in the coming pages.
  5. By following all the above steps, one has automatically increased his chances of success in making money and wealth creation. Now he has to focus on the various avenues for increasing wealth and allow money to compound.

Before we proceed further we must remember the words of Nathan Mayer Rothschid: “It requires a great deal of boldness and a great deal of caution to make a great fortune; and when you have got it, it requires ten times as much wit to keep it.

A Few Last Words

That’s it for today. Hope you have been enjoying the posts.

I hope you found this article on wealth creation useful. If you have something to add please leave a comment in the post. Please feel free to contact me.

Before making any investment decision, please contact your financial adviser. I have provided this article on some of the most popular financial products in India for educational purpose only.

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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.

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