If you have always thought that wealthy individuals either inherit their wealth or have profited from strong connections, learning how wealth creation from nothing may seem like a “mission impossible.” But according to a Wealth-X survey from 2019, 67.7% of the world’s ultra-wealthy—those with assets of $30 million or more—were in fact self-made.
The quick ascent in this ultra-rich class is even more intriguing. The number of ultra-wealthy people rose by over 10% to 290,720 in the 2020 report from 265,490 in the 2019 report.
Two conclusions can be drawn from the aforementioned data: first, riches can be created out of nothing, and second, people are increasingly accomplishing the “impossible.” We urge you to explore the various methods you might learn how to create wealth from nothing today rather than daydreaming about the fortune you wish you inherited.
In order to start wealth creation from nothing and move closer to living a more financially independent lifestyle, we will examine ten strategies that you can begin working on right now as a beginner.
1. Never Spend More Than What You Earn
You cannot begin the process of creating money if your expenses exceed your income. We are all tempted to spend money on pricey things like the newest iPhone, a high-end watch, a new Play Station, a vacation house, and so on, regardless of our financial situation. However, this kind of ostentatious spending may not improve your life in any way and may instead hinder your ability to save money.
The majority of affluent people really lead rather modest lives, which enables them to accumulate money for future wealth accumulation. Furthermore, prudent spending will help you reduce your debt, which might be crucial to achieving financial independence.
But, not all debt is bad. Good debt such as a home loan helps you add assets that can appreciate in value and grow your wealth. Bad debt, on the other hand, refers to using borrowed money for purchasing assets that decrease in value over time. While this is actually a poor way to spend your hard-earned money, various financial products like credit cards, no-cost EMI offers, and buy now, pay later offers are designed to promote this illogical behavior.
A simple way to reduce the chances of spending beyond your means is to minimize your debt and if possible live debt-free. This can help you can stay on track to reach your wealth creation goals.
2. Understand Your Motivation For Wealth Creation
Attempting to earn riches solely for the purpose of becoming richer may not be the ideal motivator. In fact, if your only motivation is to make more money, you will struggle to stay focused and expand your wealth in the long run.
Internalizing your goals will allow you to maintain the long-term focus and motivation required to reach your wealth building objectives. For example, if you have a specific objective in mind for money building, you will be more inspired to pursue it. Such goals may include saving money for retirement or purchasing a new car.
Other motivations for staying on course to achieve your wealth creation goals can include pursuing an educational opportunity, sponsoring a charitable cause, etc. Having a clear goal and motivation can help you overcome the various distractions that life throws at you so that you stay on the right path to achieve your wealth creation goals.
3. Make your Money Work Harder Than You
All of us work hard to earn more money. Earning more can help us save more, allowing us to accumulate more money. However, having a backup source of income from correctly investing our resources might help us achieve our wealth goals faster and more easily.
Dividends from equity shares are one type of passive income. In rare situations, dividend earnings can exceed the original purchase price of the shares. Similarly, the interest generated from Public Provident Fund (PPF) investments can exceed the initial investment if you stay invested for a long time, as demonstrated below:
| Year | Financial Year | Maximum Investment(₹) | Interest Rate | Interest Earned(₹) | Investment Corpus(₹) |
| 1 | 2006-07 | 70,000 | 8.00% | 5,600 | 75,600 |
| 2 | 2007-08 | 70,000 | 8.00% | 17,248 | 157,248 |
| 3 | 2008-09 | 70,000 | 8.00% | 35,428 | 245,428 |
| 4 | 2009-10 | 70,000 | 8.00% | 60,662 | 340,662 |
| 5 | 2010-11 | 70,000 | 8.00% | 93,515 | 443,515 |
| 6 | 2011-12 | 70,000 | 8.60% | 137,677 | 557,677 |
| 7 | 2012-13 | 100,000 | 8.80% | 195,553 | 715,553 |
| 8 | 2013-14 | 100,000 | 8.70% | 266,506 | 886,506 |
| 9 | 2014-15 | 100,000 | 8.70% | 352,332 | 1,072,332 |
| 10 | 2015-16 | 150,000 | 8.70% | 458,675 | 1,328,675 |
| 11 | 2016-17 | 150,000 | 8.10% | 578,448 | 1,598,448 |
| 12 | 2017-18 | 150,000 | 7.80% | 714,827 | 1,884,827 |
| 13 | 2018-19 | 150,000 | 8.00% | 877,613 | 2,197,613 |
| 14 | 2019-20 | 150,000 | 7.90% | 1,063,074 | 2,533,074 |
| 15 | 2020-21 | 150,000 | 7.10% | 1,253,572 | 2,873,572 |
As you can see, by the time your PPF account matures, the interest earned has significantly exceeded the deposits that you have made into the account.
However, this power to grow money significantly may only be realized if you invest for the long term, which can last decades. So, the sooner you begin investing, the better positioned you are to maximize the wealth development benefits of your savings.
Read Also: What is the Best Way to Make Passive Income Online?
To further grasp this, consider the following example. Suppose you begin investing Rs. 1,000 per month at the age of 25 and raise your investment by Rs. 100 each year. If you keep making this investment for the next 35 years and get 12% returns, your investment corpus will look like this:
| Year | Investment Per Month (₹) | Total Investment Corpus (₹) |
| 1 | 1,000 | 13,440 |
| 5 | 1400 | 100,534 |
| 10 | 1,900 | 320,401 |
| 15 | 2,400 | 750,572 |
| 20 | 2,900 | 1,551,372 |
| 25 | 3,400 | 3,005,347 |
| 30 | 3,900 | 5,610,437 |
| 35 | 4,400 | 10,244,189 |
As you can see in the above table, the total investment required to reach this Rs. 1 crore corpus was around Rs. 11 lakh over a 35 year period. This means that around 90% of the total wealth was created by the interest earned from the PPF account while the remainder came from the investments you made.
4. Give Your Investments Sufficient Time to Grow
Regardless of how carefully you plan your investments, you must give them enough time to flourish. A youthful investor may not have a lot of money to invest, but time is on their side. The opposite is true for elderly investors. The latter may have more money to invest, but they have limited time to watch their assets grow.
One approach to ensure that your investments have more time to develop is to begin investing early in life, regardless of how small the amount invested. This would ensure that you can maintain adding to your investment corpus slowly and consistently, so that you do not have to stress your finances at a later point by trying to save more within a short time later in life. This is why, as an investor, you should understand the value of time and stay invested for the long term to ensure you reach your wealth creation goals.
5. Know How You Can Benefit From The Power of Compounding
Compounding is what causes your investments to grow over time. While it is one of the most effective wealth-creation strategies, it can appear daunting at first. This is due to compounding, which begins slowly but accelerates as your wealth grows. This is why, when you first start investing, the amount you invest is more important than the return.
The following table explains how compounding causes money to expand exponentially over time:
| Growth of Investment of ₹1 Lakh at 26% p.a. | |
| Year | Corpus Size |
| 0 | ₹1 lakh |
| 10 | ₹10 lakh |
| 20 | ₹1 crore |
| 30 | ₹10 crore |
| 40 | ₹100 crore |
| 50 | ₹1000 crore |
As you can see, while it took 20 years to reach a corpus of Rs. 1 crore, it took only an additional 10 years to reach Rs. 10 crore. Within another 20 years, the Rs. 10 crore would have grown to a mammoth Rs. 1000 crore.
In the preceding example, we assumed a compounding rate of 26% p.a. This can be a daunting task, even though some investments, such as equity shares, have shown to be quite effective wealth generators. However, few investments can provide returns of 26% per year, as seen in the preceding case.
To achieve your wealth-creation goals, you may have to accept lesser returns and raise your savings proportionally. This is why understanding how power compounding works can allow you to grow your funds more quickly.
6. Know How To Implement Leverage
Working hard and earning more money might not be enough to ensure that you will reach your wealth creation goals. This might be simply because, one has limited amount of time to work after attending to other daily activities. Moreover, all of us have finite capital and there are limits to our investment knowledge and skill. This is where leverage can help you grow your investments faster.
An example of leverage is financial leverage where professionals such as fund managers and banks utilize the money of others to earn money for themselves. Other examples are time leverage and technology leverage where the individuals and companies utilize the skills of specialists to achieve more than their own abilities. In fact, correctly applying leverage can help you get to your wealth creation goal faster by taking benefit of others’ skills.
One way to apply leverage is to invest in Equities through an Equity Mutual Fund. This gives you access to the skills of a professional fund manager to grow your wealth.
7. Do Not Compare Your Wealth Goals to That of Peers
We have a tendency to compare our personal achievements to that of our peers. These comparisons can range of workplace accomplishments to the monthly salary that one is drawing. When it comes to wealth creation, we might end up comparing our savings to that of others and this can limit our ability to be successful in achieving financial goals.
The problem is that these wealth goals tend to change over time. So you need to have clearly defined goals to make sure that you do not deviate from your financial target. One way to do this is to create a comprehensive list of your wealth creation goals for the next 5 years. This list should include details like the specific goal i.e. amount you need to save, how soon you need to reach the goal, a plan to achieve the goal, and also how you plan to reward yourself once you have reached the target.
8. Do Not Take Shortcuts To Reach Your Financial Goals
As an investor, you are spoilt for choice when it comes to choosing investment options. These include tried and tested investment options such as Mutual Funds, ETFs, Sovereign Gold Bonds, FDs, etc. But beyond these investments options, many are lured by new and untested investments such as non-fungible tokens (NFTs), cryptocurrencies, green technologies, etc.
But trying to take a shortcut by investing in these new and untested products might not work favorably for many retail investors. This is because, while these new investments might be exciting, they lack the established track record of the traditional and less exciting investment routes. So, it is better to invest systematically and steadily in a tried and tested investment option rather than trying to take a shortcut to reach your wealth creation goal faster.
9. Never Stop Learning
Learning about money management and financial products gives you an edge in being successful in your wealth creation endeavors. Earlier, finding information about these aspects of finance used to be a tough task, but that is no longer the case. You can now log on to websites like the ET Money website, check on social media, and even use educational apps to get in-depth information about money management and details of how various financial products work.
As finding and accessing information has become much easier, you should definitely take advantage of this to continuously hone your understanding of key aspects of money management. If you turn this interest of learning into a lifelong habit, you will be in a much better position to grow your wealth than those who do not learn.
10. Create Greater Value To Generate More Wealth
It has been said that the wealth one generates during their lifetime is dependent on the value that one provides. This relation between value and wealth is the reason why high-level management officials get paid significantly more than entry-level workers. It is the same in the case of companies too. A company that provides products or services that are useful to consumers is valued more highly than companies that do not provide equally useful products or services.
The same is true when it comes to wealth creation. Individuals who can provide more value than others will be in a better position to monetize their skills and abilities to create wealth as compared to others. It does not matter whether these skills revolve around entertaining, writing, selling, cooking, etc. If you have the ability to do any activity better than your peers and can monetize it, you will get a headstart in your wealth creation journey.
Finally
Wealth creation is a process that requires both time and patience. If you apply these ten wealth building concepts into your life, you will undoubtedly be on the correct way to achieving all of your financial goals, regardless of what they are. After all, you may not be able to control whether you were born rich, but if you establish the correct wealth building goals and stay on track to reach them, you may certainly become wealthy in your lifetime.
