Ever since we start earning, we are constantly advised to save. We hear this from our parents, our colleagues, and even nosy neighbours – each one trying to outdo the other as our financial advisor. But as Simon Sinek rightly says, we must “Start with Why”. Why should we create wealth?
Let’s first understand the difference between income and wealth. They are correlated, but only to a certain extent. A higher income does not always amount to greater wealth. A person with an extravagant lifestyle may not necessarily be wealthy.
Income is like water flowing from a tap. Wealth, on the other hand, is when the flowing water is collected in a bucket.
To get a bit more technical, wealth is our net worth; all the assets we own, minus all our liabilities. For instance, my friend, Shruti’s net worth is the value of the laptop, the car, the fixed deposits and mutual funds she owns, as reduced by the home loan she’s taken.
Wealth cannot be created by just setting aside some money. You need to invest it in the right places. Only then does the genie that is Compounding perform its magic.
So, why should we create wealth?
To secure your retirement
Unlike our parents, our generation wants to retire early. And thanks to all the great advancements in the medical field, our life expectancy has actually increased. What this means is that there will be a whole lot of years to live when we might not have a stable source of income. We would have to rely only on our saved up funds. Now, you could either be a 65 year old travelling or starting an NGO and living comfortably, or you could be a 65 year old having to depend on other people to keep yourself going. The choice is yours.
To beat inflation
I remember back in school, I would get a samosa for just ₹5. Cut to today, I cannot imagine getting it for less than ₹15. That’s three times in just 10 years! All credit goes to the monster named Inflation.
Inflation is a general rise in the price level over a period of time. And our task is to make sure our money is constantly growing more than this monster.
Which brings me to the point that liquid money is dangerous. The value of it goes down with time. In other words, its purchasing power reduces over time. This is the reason we should make sure that all our money is invested wisely in avenues that beat inflation and create wealth.
For mental well-being
Financial stability brings peace of mind. Emergencies don’t knock on the door before entering our lives – be it a theft, or an accident, or even a pandemic. If you have reserves built up, then you can easily tide over such times. Without funds, though, we’d only find ourselves stressed out. In tough times, money should be one less thing to worry about. It must provide aid, and not be a hinderance. By creating wealth you’re owning up to a responsibility you have to yourself – to be financially independent.
To contribute to society
What impact would you want to bring about in this world if money were not a constraint?
Wealth enables you to fearlessly pursue the causes you believe in. People like Bill Gates and Warren Buffett have pledged almost all of their fortune to philanthropic causes. Of course, philanthropy is not limited to the uber-rich. All of us can contribute in our own ways. Having wealth gives us the freedom to pay it forward, make an impact, and elevate the lives of those around us, starting with the well-being of our own families.
This is not to say that one can’t pursue causes without wealth, of course we can. But having a corpus to dig into when needed brings in a greater sense of independence. Chasing money isn’t the goal, chasing the right causes is. And this is only possible when our own basic needs are met.
To have more options
Money is a means to an end, not the end itself. Creating wealth is not about having a lot of money, it is about having a lot of options. If you are financially free, you can pursue your hobbies, start your own business, travel across different places and experience new cultures. You can grow and develop in the way you wish to. Your wealth will open doors to new opportunities.
Speaking of opportunities, grab the chance to create your own wealth as soon as you start earning. We tend to procrastinate things that seem difficult. And the world of finance can certainly seem complex. But creating wealth is much simpler than it seems. And the earlier you begin this journey, the earlier you build the awareness, the habits, and the discipline required to lead an extraordinary life.
