Tuesday, 31 January 2012

Obstacles in building Wealth

On a numerous occasions the primary reason for failure is, we ignore or don’t give importance to all that WE SHOULD NOT BE DOING. Example might help in giving a better picture. Travel from Bangalore to Pune.  The Goal is to reach in less than 12 hours.
You can easily achieve this by traveling in car, provided you don’t start late. You start off at 8.00 AM; I bet you would at least need 2 hours to get out of Bangalore.  You should avoid en routing to cities on the way. This means you should use by-pass and stay on highway.  Creating wealth is also a Journey; in fact it is much longer and important than the Bangalore-Pune Journey. The scope of this article is only to focus on DON’T’s or things you should avoid in the journey of wealth creation.
  •  20 Years Home Loan:  20 Years commitment??? Is your goal to create wealth for the BANK? Banks are already Rich, by paying EMI for 20 years you are making them wealthier.If 40 to 50% of your salary is going toward EMI, where and how can you build wealth for yourself?  This does not mean one should not buy a house or flat. Keep the tenure as short as possible. 
  •  Personal Loan or Credit Cards: Can you think off dozing when you are travelling at 100 km per hour? Can you think of applying sudden breaks on freeway?  Answer to both questions would be a BIG NO. Applying sudden breaks or dozing can be fatal. Similarly if you aiming for smooth journey for creating wealth, strictly stay away from personal loans and Credit cards. Click here to read Credit Card Trap
  •  Direct investment in stocks: Direct investment in stocks needs Skills, Time and Temperament. If you don’t all these with you, making money from stocks is not your cup of tea. Investments relying on Tips, investing without knowing the fundamentals is biggest blunder. If you are keen to invest into stocks, do it via mutual funds. Good Mutual funds that have consistently performed well in the past can be considered. Click here to read why Not to invest in stocks directly
  • Lack of Diversification: One of your friend’s investments grew multiple folds in Real Estate. The next thing that comes to your mind is, if he can do it, why can’t I?  Well Well Well, Simple concepts don’t put all your eggs in one basket.  Investing you money in only one sector is sign of danger. Diversify, but don’t over DO IT.  Don’t end up buying 20 mutual funds and tag it as diversification. 2 or 3 diversified mutual funds should be good enough. Based on your risk appetite invest accordingly into Mutual Funds, Real Estate, Bank FD’s, PPF, Gold.
  •  Mixing Investment and Insurance: Are you looking for BANE(curse) in disguise? If the answer is NO, don’t buy complex products that promise insurance and returns. Some insurance advisors portray ULIP to be the biggest wealth creator and also provide you needed insurance. This is not true. ULIP does create wealth for the advisor and not for you. I simply hate the word ULIP. Instead of ULIP why not go for Term plan + Diversified Mutual Fund.  This will give you more flexibility. The only product that should be brought for insuring your life is Term insurance.
  • Starting off Late: In the above example Journey from Bangalore to Pune, we saw impact of late start. Due to the delayed start there we might end up failing in our Goal of not reaching Pune in 12 hours. Many a times it’s the Delayed start why people end up not succeeding in Creating Wealth. So when is the ideal time to start? The best time to start off investments is the day when you get your first salary. Great if you can start of much earlier than this. You can start off investing a part of your pocket money. By doing this you will master the art of savings and Investments. For money to earn money, you need to give enough time.  The real power of compounding can be observed when you give more than 20 years for your money to grow.
  • En cashing your PF and Gratuity Amount : If you stay with company for more than 5 years you are eligible for Gratuity. When you change Jobs you have an option to en-cash PF and the Gratuity amount. Withdrawing this amount is no better than killing the Duck that lays Golden Egg. Gratuity and PF amount should be strictly reserved for Retirement funds.         Do you agree if you Take care of DON’T’s listed above and your journey to wealth Creation will be lot smoother?


Shankarraju said...

Great post. Can also include buying the products which are luxury for showcasing purpose. Buying something thinking it as investment but rather it is a liability/debt, best examples are land,house,SUV car,etc

WealthUCreate said...

Let me tell you, we should start off planning our retirement, building assets the day we start earning. Many of us do exactly opposite, the day they start earning they end up adding more and more liabilites. Yes as you quoted, buying expensive cars, Mobiles, etc.

Is EMI the main culprit?

malar vannan said...

"the day you start earning ,start saving" ....i understand it after 10 years..now only...thanks

WealthUCreate said...

Malar Sir,

Better late than never. Start off right now. Feel free to disucss your plan, approach. You can either enter it in comment section or send out an email to me.

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