One of the most pertinent topics, seldom taught, or not enough, deals with learning to manage one’s finances. To be more precise, how can a person become wealthy. No syllabus accounts for how one should plan and manage their money in order to keep it safe and make it grow. Most of management education’s curriculum focuses on wealth creation for big corporates and organisations, but teaches individuals little about how to do the same when it comes to personal wealth.
Most professionals end up having to learn this when it comes to their personal earnings by trial and error. As a result, a very small percentage of people end up knowing what personal wealth creation entails.
In effect, this makes for a long career filled with years of working and earning which may or may not lead to personal wealth.
So, what is wealth and wealth creation?
From a financial perspective, wealth is simply the market value of all your assets. The key and oft ignored perspective is the ‘context’ of market value. So, if anyone aspires to be wealthy, it is always in the context of value which is dependent on various other factors.
Simply put, a person cannot keep a lakh of rupees locked up in their home and think that this is wealth and that it is protected and safe. The reality is that the actual value of that lakh of rupees erodes with time and unless a person takes proactive steps to keep on improving that value or at least maintain it, that sum of money would lose value over a period of time. For instance, one-lakh today, 3 years down the line, owing to inflation, would be less valuable then, than it is now.
This leads us to the twin objectives of wealth:
- Wealth can be used for income generation
- Wealth can be used for growing and increasing the value of the same.
During the early and maybe even the middle phases of a person’s career the first objective is not relevant. If a person is working and earning, wealth should not be used for income generation but for growing its value and further wealth creation.
However, if the entire income and, perhaps, even their future income is spent in advance, the scope for wealth creation diminishes dramatically. This not only leads to a future that isn’t very financially secure but might very well jeopardize one’s existing lifestyle and even their credibility.
Therefore, if a person wishes to become wealthy over a period of time, they should first understand the basics of how wealth can be created and the starting point for that is to manage one’s income properly.
Although, a lot has been written about the merits of living within one’s means, planning and budgeting expenses, etc., the reality is that most people tend to ignore this. The spending patterns are largely defines by the balance available in the account and the credit available on their cards.
Next in the series
This coming series of articles on wealth creation does not suggest that you become a monk and stop spending the money that you earn. They would outline some steps and suggest some ways to manage your income and expenditure in a better manner and what to do with the surplus balances so that you can create wealth. So, stay tuned..
To read more from the Out of Syllabus section, click here .