While many of us are well into the investing mode, it might be worthwhile revisiting some basics.
So how does one go about creating wealth? A good place to begin would be to know the difference between Savings and Investments. Savings is the money left over from after your expenditure and taxes. An investment is putting that money into an instrument so that it generates more wealth for you.
Knowledge about financial instruments is key to creating wealth. You may have already invested your money in instruments like Fixed Deposits, Mutual Funds, the Stock Market or Insurance. But do you know all that you need to know about the instrument? See our Further Reading links at the end of this article, for a start point. Read books, surf online for articles, talk to people who seem to have it right – in short, ask a lot of questions. But remember that any advice you get is only an opinion.
Risk is another key factor in investing. Most of us are risk-averse. However, the golden rule in investing is to ‘manage risk’ for better returns. This fundamentally means we risk only as much as we can afford to lose.
Sure, we’ve had chit funds promise us the moon, and we’ve ended up with a handful of dust. This is a clear case of not asking a key question – What’s the catch? Beware of offers that look too good to be true!
Taxes. Do you know if your unique financial profile has some tax-exemption benefits that you can avail of? Remember, it’s exemption, not evasion. Exemption is legal – evasion isn’t.
Think of the millionaires we read about in media. While they may have a flock of investment advisers hovering around them, every decision with regards to money, is still theirs. None of them say that somebody else makes the money-decisions for them.
Unless you monitor these investments, you may miss some great opportunities to make them work harder for you. Think - Is this the best instrument I am invested in at this point? (Do remember that a financial distributor makes more money from you every time he makes a transaction on your behalf – be it investing, liquidating or switching between subtypes. So, it’s better that you’re sure about your decisions.) Unless we take ownership for our financial wellbeing, we will forever be worried about being unable to afford something or provide for our families. Just knowing how much of our money is invested and what kind of returns to expect, will help us focus on how to spend that money.
Do you at this moment know exactly how much of your hard-earned money is invested in which instrument and how much the returns are?
FURTHER READING:
- Rich Dad, Poor Dad by Robert T. Kiyosaki
- One Minute Millionnaire –Mark Victor Hansen and Robert G. Allen
- The Richest Man in Babylon – George S. Clason
- Useful link:
o Basics of Wealth Creation - http://www.dallasfed.org/ca/wealth/1.html
(Article written for Best of Crest, 2007)
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