Tuesday, December 6, 2011

2 simple habits to help you create wealth

All of us want to create wealth. Also we want to create it fast and with ease. It is really very easy to do it. Also it does not require any great efforts and skills to create wealth. We just need to develop right habits.

We all know that if we want to reach somewhere fast we need to start early. Similarly if we want to create wealth faster in our life – so that we can enjoy it while we are young – we need to start creating it earlier on. Legendary investor and wealthiest man on earth Warren Buffet made his first investment when he was 11 years old and according to him he started late. Warren Buffest was millionaire by the time he was around 30 years old.

Unfortunately most of us procrastinate our wealth creation. Initially when we start our career and earn our first income, we want to buy whole world from it. Soon we get married, we buy home, have our family, expenses keep adding up. Our income increase but so does our expenses. These are testing time for wealth creation. If we wait for next year, next increment, next bonus, next incentive to start saving it will never happen. The only thing that will happen is delay in wealth creation.

Vikram decided to set aside Rs 10,000 every month in an instrument that generated 8% return per annum in January 1991. His friend Rohit also thought he should start investing and hence he began investing same Rs 10,000 in same instrument one year later i.e. from January 1992. On 31st December 2000 i.e. when Vikram had invested for 10 years and Rohit had invested for 9 years both the friends looked at their investments. Vikram had created corpus worth Rs 18,29,460, while Rohit who had started one year later had Rs 15,74,295. Rohit had Rs 2,55,165 less as he delayed his investments by one year.

If Vikram and Rohit were to continue same investment of Rs 10,000.00 per month for 40 and 39 years respectively than the difference in their corpus at the end of the period will be Rs 27,90,415. Think of the loss Rohit incurred purely because he delayed investing just by one year.

Many times when I give similar examples in my articles, I get emails from readers stating they do not have Rs 10,000 to invest now and hence they will start investing only when they accumulate Rs 10,000. This is another way of procrastinating. Whether one starts with Rs 100 per month or Rs 1,00,000 per month, end result is that the individual who starts early wins with the race hands down.

Our spending habits also create hurdle in wealth creation. While prudent wealth creation philosophy is to follow P-I-P-E i.e. Prepone Investment, Postpone Expenses, we always Prepone Expenses and Postpone Investment. Rushing for ‘Sale’ and purchasing our future requirement today is preponing expenses. Note that I am not against purchasing from sale. I am only suggesting do not buy something which you do not require immediately. Retailers are always keen that we prepone our purchases. This will help them earn their income early. However our focus should be to make efforts to propone savings and investments. This will help us create wealth early.

It's not your salary that makes you rich; it's your spending habits.”- Charles A. Jaffe

Source: moneycontrol.com

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