Wealth Creation – Meaning & Importance of Wealth Creation Plan

What do you have on your vision board? Do you have long-term goals like buying your dream house, saving up a retirement fund, or financing your child's higher education? Or, do you have short-term and medium-term goals like buying a car?

No matter what you desire, having a wealth creation plan can bring you closer to achieving it. Wealth creation refers to building wealth through several financial products with the aim of gaining high returns over a period of time. How you create wealth depends on your financial knowledge and personal objectives.

In this article, we will discuss the importance of wealth creation and how you can create wealth successfully. 

What is wealth creation?

Wealth creation refers to the process of generating assets and income over time to achieve financial security. It involves strategic investment, disciplined savings, and prudent financial planning. 

Wealth creation is not just about earning money but also about building sustainable wealth that can support your lifestyle, fulfil long-term goals, and secure your future. Whether it's purchasing a home, funding education, or enjoying a comfortable retirement, wealth creation is essential to achieving these life milestones. 

A simple way to ensure wealth creation is to invest your hard-earned money in the right investments and give them enough time to grow. Starting early can help you invest for the long term and realise the benefits of the power of compounding by staying invested for long.

Moreover, increasing your investments as your income grows is also a sustainable way to reach your wealth creation goals faster. By investing your funds in the right schemes, managing risks, and staying committed to your financial goals, you can steadily build wealth and secure your financial future.

How Can You Achieve Your Wealth Creation Goals

Achieving wealth creation goals requires you to have a clear plan and practice disciplined execution. Start by setting specific, measurable financial goals and choose the right investment vehicles, such as mutual funds, stocks, or real estate. It is also important to set a spending budget and prioritise systematic saving by paying off high-interest debt.

Further, building an emergency fund can also help you meet any unexpected financial needs without affecting your investing goals. 

The importance of wealth creation

Wealth creation is essential for the following reasons:

1. It helps you systematically accumulate money. Even if you start small with SIP and fixed deposits, you can achieve your goals.
2. By generating wealth, you ensure a steady flow of income even when you are no longer employed. It allows you to have liquidity, ensure security and provide for your family.
3. It allows you to be independent post-retirement and cover recurring expenses like healthcare.

Each individual can have multiple objectives of wealth creation across different time horizons. Depending on these factors, you can pick a suitable strategy, like investing in fixed deposits, gold, or mutual funds online.

Additional Read: Simple Strategies to Build Wealth with Mutual Funds In 2022

Creating your wealth creation plan

What is the correct path for wealth generation? Mutual funds, fixed deposits, or stocks? Well, wealth creation strategies are not one-size-fits-all. They depend on your savings potential, financial goals, and risk appetite.

However, there are some best practices you must stick to throughout your plan. These are the ABCs of wealth creation:

• As your income increases, increase your investments proportionally.
• Be sure to increase your savings. You can do this by setting up a passive income stream and cutting down avoidable expenses.
• Choose the right time to exit. Plan your exit when you are nearing your goal. 

Choosing the right investment instrument

Today, you have access to a wide variety of investment options. But, not all of them are the right fit for your wealth creation plan.

For example, say you are saving up for a short-term goal for the next 15 months. Now, you cannot do so with a high-risk instrument that can underperform in the short term and compromise the value of your invested amount. In this case, the safety of your money takes priority over your potential returns. The safest option here is to go with liquid funds or fixed deposits.

Conversely, if you want to save up for a house over the next five years, you can choose mutual funds for long term wealth creation.

Additional Read: Is ELSS a Wealth Creation & Tax-Saving Tool?

A word of advice

Remember that wealth creation is a continuous process. So, after you make a plan, follow it in a disciplined manner. Make the right choices with investment instruments, and you will succeed in creating wealth over time.

Start investing in the best mutual funds for wealth creation with Tata Capital's Moneyfy app. Set a financial goal, assess your risk profile, and browse mutual funds schemes suitable for you. Download the app today!

FAQs

1. What are the most important factors for wealth creation?

The most important factors for wealth creation include disciplined saving and consistency in paying premiums. Consistency and patience are key to building substantial wealth over time.

2. How much do I need to invest in order to make a corpus of four crores in 20 years?

There are various ways to build a steady corpus over time, two of which include fixed deposits and Flexicap funds.

To accumulate a corpus of four crores in 20 years, you need to invest approximately Rs. 40,000 monthly under Flexicap funds, assuming an annual return of 12%. This estimate varies based on returns and inflation.

3. What are the 4 pillars of wealth creation?

The 4 pillars of wealth creation are Acquire, Protect, Growth, and Pass it Along, which involves acquiring wealth through various ways, protecting wealth through risk management, growing your investments, and passing it along with smart estate planning.

4. What is the wealth creation theory?

Wealth creation theory refers to the process of investing your hard-earned money in the right investments that align with your financial goals and growing your funds by choosing the right investment horizon.