Art of wealth creation

In a wealth creation journey, different people will be at different places. A young person who joined a job newly is at the beginning. Middle aged person should be anywhere from beginning to the end. Only the person knows at what position one is in. One has to understand this first.

Then comes the requirements/goals. What are the objectives for which one is saving or creating wealth. The answer that easily comes to the mind is retirement. There can be/ will be some more goals one feels one is responsible. These are to be identified. Of these, retirement corpus is sacrosanct. One should plan to get reasonable corpus to see him through his retirement.

What is the corpus required for this? A reasonable estimate will be about 15 times annual current income. However, one has to estimate for himself and plan for the corpus. It will be better to err on the higher side. This is because the costs are continuously increasing and having a higher corpus will not hurt.  

Next step is to find the resources. First will be the salary surplus. Salary surplus is the amount left over after all expenses. However, it will be better if one controls expenses to the extent possible and maximizes the surplus so that the same can be channelized to wealth. As retirement corpus/goal amounts are generally big, one needs to channelize the maximum possible to meet the goal at the earliest.

For reduction in expenses, one needs to re-look at the expense sheet for a month and see if some of the expenses can be reduced or eliminated. It is a worthwhile exercise as one comes to know what all the expenses one is incurring in the first place. First step is identification and second step is follow through, to increase the monthly investible surplus.

Once this surplus is obtained, one has to plan for security first. Some contingency fund is required to see one through difficult times. This can be equal to 3-6 months of expenses and stored safely.

Then comes insurance. If the earning person is single, there is no need for insurance. But if one supports a family, insurance will help securing the income source of the family. Also, insurance amount is to be sufficiently large to see the family through a reasonable time.

After meeting these 2 requirements, one can start channeling balance surplus to investments.
There are various ways of investing, depending on the risk appetite.

Will post my thoughts on this, in another post.