Wealth Creation: 7-point mantra to become a crorepati

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Dreams come true if one takes steps in the right direction. Becoming a crorepati is a dream for many. Here is a seven-point gameplan that, if followed judicially, can make you wealthy.

Start early

Put down some money aside for investment purposes the day you earn your first income. The earlier you start, the better off you are as long term investing helps you to compound your investments. Rs 1000 invested at the rate of 12% will grow to Rs 3,105 after 10 years. However, if you let it accumulate for 30 years, instead of 10 years, then it grows to Rs 29,959. Start early to make your money compound for a longer period of time.

Be regular with your investments

Since many of us get salary each month, we should also be investing each month. A recurring deposit with a bank or Post Office or a systematic investment plan in an equity funds help. Small investments at regular investments are not cumbersome. They are far easier than putting across a large sum of money. If you invest Rs 10,000 per month, for 10 years at 12% rate of interest, then you will accumulate Rs 23.2 lakh at the end of 10 years. At the end of 21 years, you will have Rs 1.14 crore in your kitty.

Increase your investments as your income rises

You can accelerate the process if you decide to increase your investments with a rise in income. In the above example, instead of investing Rs 10,000 per month, if you keep increasing your monthly investment by Rs 1,000 at the end of each year, then you will reach Rs 1.18 crore by the end of 18 years. Increasing your investments also takes care of lifestyle improvement.

Make your money work hard

Never let money sit idle in your account. If you can put it to the best possible investments as early as possible, then you get more time to compound it. If you have received some money as bonus or maturity proceeds of some old investments, ensure that you put it to use as soon as possible.

Diversify and rebalance

You may be a good investor, but markets have their own mind and are not always helpful. Macro events can pull them down over the years. Such volatile periods can put you off the track. If you have an asset allocation in place in line with your financial goals and your risk appetite, then you stand a better chance of accumulating a good amount of wealth. Keep rebalancing your asset allocation from time to time.

Avoid complicated investments

Warren Buffett, the most successful investor in the world, preaches the concept of circle of competence and simplicity of investments. Even he does not invest in businesses that he does not understand and recommends index funds for average investors. If you avoid exotic investment products or derivatives trading on account of lack of understanding, then there is a fair chance the slow and steady approach will help you reach your goals.

Focus on take-home returns

Inflation and tax are the most deadly enemies of investors and cannot be overlooked. A clear understanding of post-tax and post inflation return can help you to make better investment decisions.

If you take this basic seven point action plan seriously and implement it in letter and spirit, then you are on your way to becoming wealthy and being a crorepati will not be distant dream. Staying away from high cost loans will further accelerate the process. Though loans cannot be avoided altogether, keep them under check. Wherever necessary, consult an advisor.