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5 Myths About Wealth

IndianMoney.com Research Team | Posted On Tuesday, September 04,2018, 01:33 PM

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5 Myths About Wealth

 

 

Who doesn’t want to be wealthy? A stupid question. Everyone wants to be wealthy. But, myths can come in the way of real wealth. It’s popularly believed, High Risk = High Returns. True wealth is not about high returns. It’s about consistent returns.

Why not get returns fast? You will be wealthy real soon.  Think of this. You dump all your life’s savings in stocks, hoping to make a quick buck and the stock markets crash. You withdraw all money from the stock markets in panic and suffer heavy losses.

You have lost confidence in yourself and just don’t want to touch any investments. What do you understand? Wealth creation is not about good returns, It’s about consistent returns.

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5 Myths About Wealth Which May Change The Way You Approach Money

1. Is wealth just a good salary:

You earn a handsome salary. Does it guarantee true wealth? Definitely not, if you waste all the money. Being rich is about saving money and investing wisely. It’s about tax planning and not paying an extra rupee in tax.

When it comes to investments, it’s all about boring. “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

When investing, have confidence and stick to your investments. Be patient and tread on the path to wealth.

2. Keep emotions at bay:

Emotions and wealth are bitter enemies. Hope, Fear, Greed, these are all enemies to be kept afar. If you want to see true wealth, leave emotions at your doorstep.

One of Warren Buffett’s great quotes? “Don’t let emotions cloud your investing decisions. Keep all that excitement away from investing.”

3. Stay focused on asset allocation:

A popular myth. Investments which give the highest returns are the best. Wealth building is all about asset allocation. Asset allocation is all about allocating investments/money between debt and equity, based on financial goals, your age and risk profile (risk you are willing to bear).  Asset allocation is long-term planning.

Let’s say you wanted to buy a house in 2011. You started saving and investing for it, way back in 2004. You invested smartly across 2005 to 2007, until the stock market crash of 2008 came along.

If your asset allocation was right, there was absolutely no need to panic. You could have purchased stocks and equity mutual funds at really low prices. (Simply speaking you could have invested right through the stock market crash by moving assets from debt to equity).

Stock markets raced along post 2009 and you could have bought a handsome house in 2011, with the returns through smart asset allocation.

The stock market is too risky for my retirement money. This is a bad mistake. With asset allocation you are always invested in equity and get handsome returns for retirement.

SEE ALSO: 13 Home Loan Terms You Must Know

4. Don’t mistake wealth for financial fitness

Wealth is having a lot of money. Being financially fit is having money when you need it. Your diamond cannot help you in a medical emergency. You might not be able to sell land in a hurry, when you need the money. This is the difference between being wealthy and financially fit.

Financial fitness starts young. A popular mistake? I’m young, so I don’t need to save for retirement now. Save for retirement right from the first salary of your first job.

Another mistake? You forget to make that budget. A budget helps get control of each rupee earned and spent. You already keep track of your money, so you don’t need to budget. This is a mistake you could regret across a lifetime.

5. All debt is bad

This is where you must distinguish between a good loan and a bad loan. A good loan helps build an asset. Think home loan to buy a dream home, which gives a roof over your head and also appreciates in value. A car loan to buy a car you badly need. An education loan to give you a bright career and the path to wealth. All these are good loans.

What is bad debt? You avail a personal loan to go on a vacation. You spend heavily using the credit card. A bad mistake as both personal loans and credit cards charge high interest. A personal loan charges interest of around 14-21% a year. A credit card charges interest of around 2-3% a month. Credit cards should be avoided at all costs.

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