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10 Wealth Creation Tips you Should Know

dateKnowledge Centre Team dateJanuary 13, 2021 views178 Views
10 Wealth Creation Tips you Should Know

Wealth creation is something humans yearn for from a very green age. Even before taking up a career or discerning their passion in life, maximum people are confident about making enormous amounts of money.

There is no susceptible road to wealth creation. It takes a lot of smart work and a lot of your most precious possession – and no, not money. It’s time. Time is one of the most unperceived things in the world.

Maintaining important income objectives can help you accomplish a degree of satisfaction with your capital which is hard to obtain from any other properties. Equity goals are also helpful as they can enable you to fulfil your other monetary motives more efficiently. Several distinguished businessmen and women who found monetary prosperity have been known to follow a wealth goal before lunging into the industry.

However, like much good stuff, capital objectives are not easy to achieve. With the proper strategy to save and invest, even ordinary people like us can achieve incredible feats.

What is Wealth Creation?

Wealth creation is the procedure of heightening assets and reducing debts over time. Wealth creation is eventually the procedure of establishing and building a reliable source of sustenance so that you would not have to strive to make ends meet.

A person’s wise and rational financial judgments determine the value of wealth they can generate.

Two important points to ponder are:-

a) It is crucial to understand that wealth grows, but it banks how it is utilized and regulated.
b) Careless oversight of accrued wealth can lead to a total loss of wealth.

Wealth creation includes numerous aspects like your assets, property, retirement plans, inherited property, gold and valuable metals, etc. Putting your money in these instruments enables you to grow your economic worth over the years. The appreciation in the value of assets or the retrievals made from capitalizing in stocks, bonds, mutual funds, etc., are all means to earn revenue.

10 ways to Speed up your Wealth-building Goal

1. Set the Right Goals

The affluent and prosperous people you see and yearn to be like are not always born with a silver spoon. But they do understand the importance of setting goals. Whether it is your retirement plan, estate plan, savings plan, or even an emergency fund, setting the right goal is the primary stride towards building wealth. To ease the process, you can utilize a savings goals calculator.

In extension to an emergency fund, you will also require retirement accounts. It would be best if you contemplated whether you need:

a) Education savings, for yourself children

b) Travel savings

c) A down payment fund for a house

d) Savings to start a business

e) A car fund, for repairs or a new vehicle

f) Extracurricular fund for dependents

g) Long-term care savings, for yourself or dependents

By generating specified savings funds, you can track your headway toward particular goals.

2. Invest your Money

Well-known American businessman, Robert G. Allen once cited, “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”

Wealth creation is not about saving a distinct part of your remuneration in your savings account each month. While having an emergency fund is vital, it is also necessary to capitalize some part of your earnings.

83 percent of millionaires acknowledge ‘smart investing’ as a key to their fortune according to a whitepaper published by the Spectrem Group. The research also shows 48 percent of millionaires’ investable assets are in stocks.

Hence, investing in stocks and bonds can further enhance your odds of creating more wealth. It is also fundamental to start investing as early as you can in your vocation.

3. Diversify your Portfolio

Like having numerous income sources, having many investments is also one of the promising wealth creation procedures you can pursue. Diversification of portfolio operates on the doctrine of not putting all your eggs in one basket. When planning out your portfolio, look at various avenues like real estate, stocks, bonds, mutual funds, etc. Diversification curtails the risk of loss and can get massive returns.

Definition of Portfolio Diversification | What is Portfolio Diversification?

4. Maintain your Credit Score

Everyone is conscious of the difficulties that come with debt, and yet people somehow can’t circumvent the debt trap. Having a debt not only takes you a few notches away from your financial goals each month but also influences your credit score. Try to steer clear of the credit card debt cycle at the end of each month. Sustaining your credit score is essential to wealth creation as it can transpire in better interest on mortgage and loans.

5. Invest in Real Estate

Real estate is an excellent way to bolster the zeros in your net worth. Though they can be slightly tricky, investments in the right kind of properties can provide great returns. Consult an experienced realtor and invest in properties that can later be auctioned at more significant interests. Real estate is a faster way to improve your net worth than conventional wealth creation strategies.

6. Allocate to Equity

Equity allocation is a must if you intend to accomplish your wealth goal timely. Equity is the only investment which pacifies both inflation and market expansion into your portfolio. Thus, it would be best to capitalize a portion of your cumulative savings into the equity market.

You need to choose the promising investment alternative for your equity investment depending on your life and financial predicament. Thus, you can see equity allocation gives you many chances to customize and accumulate money as per your risk profile.

Managing your portfolio risk and maintaining it within adequate limits is very crucial. Know that while you are investing for an income objective, you will still require money from time to time to meet other monetary goals.

Thus, always take a planned risk with equity investments. One of the promising techniques which may work marvels is to allocate 50:50 to debt and equity holdings. Then you can readjust your portfolio after some time depending on equity market performance.

7. Have more than One Income Stream

Your primary business is an active income stream, and if you work an additional job or a side hustle like driving an Uber, that is also an active income stream.

On the contrary, investing in income-generating stocks or bonds is a form of passive income. Your money earns money without your having to toil for the real corporations you invest when in need.

Another form of passive income pertains to leasing real estate properties that you possess as long as you don’t have to expend too much time on the upkeep or overhauling your properties.

The more revenue you reap, and the faster you generate it, the more time your money will have to compound and earn a retrieval. So start considering how you can expand your current income streams today.

8. Learn to Manage your Wealth

Wealth creation is not just about acquiring surplus money; it also about organizing it well. A salary hike should not result in high living expenditures. Instead, it should result in raised savings and investments. With every salary hike, allot a little to your living expenses, but recoup the remainder for investments.

9. Increase your Investment Every Year

Another golden rule of scooting the revenue goal faster is heightening your investments as your earnings grow. Ideally, your savings ratio should expand as your income thrives, i.e. you recoup a larger portion of your income with each growth.

Learn these 10 smart ways to save your salary every month.

This will ensure that your investments keep up with your evolving lifestyle, and so does your income objective.

10. Get Professional Help

With the internet and other technical developments, there are various tools and platforms available which tell people how, when and where to invest. You may also find suggestions by the specialists on the best stock alternatives to invest. However, finding out what is best for you which suits your situation can be a little tricky.

Before you invest, you must know that an investment that is best for someone may not indeed be the promising option for you because your financial objectives, investment horizon and risk appetite are not identical. It is advisable to discuss with a trusted monetary planner or advisor before making any decision.

A professional planner can look at your risk appetite and objectives to formulate the best wealth creation scheme to suit your requirements and goals. Investing is a long-term policy for creating wealth. The most prosperous investors invest timely, then allow their money to ripen for years or decades before utilizing it as revenue.

Pursuing these easy tips can be incredible for your net worth in the long run. Wealth creation is all about discovering the right equilibrium between traditional insurance plans and taking planned investment risks. The notion is to be consistent and careful and to put together the perfect wealth creation strategies.

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In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

The best time to invest was yesterday, the next best time is today. This statement fits aptly in the case of ULIPs as well. The earlier you can invest in ULIPs the more time you will give your investment to grow. This will help you achieve your goals.

Fund value in ULIP refers to the collective monetary value of all the units owned by you in the policy. For example, if you own 10,000 units of equity, each priced at 10 Rs then your fund value will be Rs 1 lakh (10,000x10).

A ULIP plan offers you a host of funds to choose from according to your risk appetite and preference.

ULIP not only allows you to invest and grow your wealth but also provides life coverage. Thus, it cares for you and your family from any uncertainty that can occur.

ULIP also provides you full transparency and control relating to your investments, helps you avail tax deductions, and inculcates saving habits.

All these factors make ULIP one of the best investments in the market.

Yes, you can cancel/surrender your ULIP plan. This cancellation will incur expenses in the form of discontinuance charges if done before the lock-in period is over. Also, this ceases your life cover benefit as well. This is why discontinuing your policy is not advisable.

You can withdraw free of any charge after the initial lock-in period. This lock-in period is generally 5 years. Some plans have a fixed number of withdrawals after that you are charged. While some plans give you unlimited free withdrawals as well.

If you want to withdraw before the lock-in period, you will have to incur the policy changes.

The main difference between SIP- a systematic investment plan and ULIP is that ULIP offers you insurance as well. In SIP, you are required to invest a certain sum of money at an interval chosen by you. This reduces the market risks and helps you grow your wealth over some time.

ULIP, on the other hand, provides you with an option to invest your funds systematically and earn a return and gives your life coverage as well. ULIP gives you chance to invest in your own chosen fund. So, you not only get market-linked returns but also insurance cover.

Basis ULIP Traditional Plans
Meaning Financial product that gives you the benefits of both investment and insurance in a single plan Type of plans which is characterized by guaranteed returns and low risk.
Funds You can choose to invest in both equity and debt. The funds involved are mostly debt.
Charges Contains multiple charges such as fund allocation, surrender charges Few minimal charges involved
Transparency Full transparency. All charges are known. The investor also has the option to track his funds. Low transparency no tracking allowed.
Lock-in period 5 years No lock-in period
Withdrawal Can withdraw after lock-in period is over Once invested, you cannot withdraw before maturity
Switching Allows you to switch between funds Not allowed.
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