“The first wealth is health.” ~ Ralph Waldo Emerson.
Wealth creation is a concept we would all want to master. Our effort to earn more or spend less to create wealth is a dominant driver in the wealth creation process in the short term. We all work hard to move up the income ladder to enhance our income month after month, year after year.
A financial plan is a great way of ensuring a solid foundation for our life to reap long-term and better benefits. Below are various stages of building a financial plan and their importance.
Net worth and Financial Goals
At the base of the plan lie the foundations for your wealth creation strategy. Before you begin to develop your strategy you need to get a clear picture of your current wealth situation and understand the gap between where you are currently and where you would like to be in the future. The first step is to work out your net worth. This is the difference between what you own (assets) and what you owe (liabilities). Your net worth is your wealth and forms the starting point for your personal wealth creation strategy.
Having financial goals is knowing where you want to be in the future and financial goals vary from person to person. It is important to note that successful wealth creation requires us to solidify these ambitions into short, medium and long-term financial goals and set realistic timelines and specific milestones to ensure you stay on track.
Before you can begin building your wealth, you need to repay all your debts. This is because debt is expensive and the interest that you have to pay on the debt will consume much of your returns from savings and investments.
Save and Invest
This is the bread and butter of your wealth creation strategy. Every coin you save and invest has the potential to increase in value and grow your wealth over time. Ideally, while saving and investing, diversification is important where you have some funds in high-risk investments and other others in low-risk investments. This means you will not be completely exposed to market volatility. In addition, the first savings step is to create an emergency fund, which will act as a buffer against significant expenses related to unforeseen events.
Grow Your Knowledge
One of the key nonfinancial direct aspects of building your wealth is to grow your knowledge about both financial and non-financial matters. Improving your knowledge will make you better equipped to make decisions about how you manage your money.
In the same regard, great opportunities tend to go hand in hand with growing your knowledge. Taking risks is important and provided you have evaluated and are comfortable with the risk, you should do your best to leverage the opportunity.
Wealth follows health
As you work hard to build your wealth, you need to ensure it is protected as well as yourself. Eat right, exercise well, have a life cover and health insurance to safeguard yourself, and thus your wealth.
Personal financial planning is about connecting the various dots in our financial life. Building personal wealth is all about using your money, assets, and knowledge to take advantage of opportunities that will enable you to earn more money, acquire more assets and grow your knowledge. Making your money work for you is far more powerful than working for money.
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