Can I Really Be Wealthy?

by Rakshitha Arni Ravishankar, Associate Editor

“Do you know the difference between wealth and income?” my uncle asked my cousin and I, on a breezy Sunday morning. We were on a family vacation in the hills, and the last thing I wanted to think about was having a serious, adult conversation about money. ?

“Umm, I think income is the money you make at work, and wealth is what you inherit,” I blurted out, struggling to hide the frustration in my voice.

“Not really,” he said. “Wealth is what you build with the income you earn. It’s about using the money you have to make more of it.”

At the time, my uncle’s explanation didn’t make a lot of sense to me. I nodded, let it go, and didn’t think more about it until a few years later when I finished grad school with massive debt from a student loan. The first job I took barely covered my expenses. I had to rely on a credit card even when I didn’t fully understand how credit worked. Living in a city as overpriced as New York (and later New Delhi) was a daily reminder of how expensive life could get.

My uncle was right. Just trying to earn more money or setting aside some savings wouldn’t help me in the long run. To build a financially safe future, I had to find ways to create wealth. ?

While learning about financial planning can seem daunting at first, building the right skills to manage your money is empowering. It makes you more thoughtful about setting clear and achievable expectations. The key is to be consistent and start small, with daily practices that move you closer to your goals.

Here are some things that I’ve been working on over the last five years: ??

1. Budgeting my income. I follow the 50/30/20 rule where you put 50% of your income towards your immediate needs (rent, groceries, utilities, etc.), 30% of your income towards things you want (takeout, entertainment, vacations, etc.), and 20% towards your savings, loans, and investments.
2. Creating an emergency fund, equal to my annual income. This is all the liquid cash that you put aside for a rainy day. The number may feel big when you’re just starting out but remember that this is a long-term effort. (Honestly, it’s taken me more than four years to reach my goal.)
3. Building a retirement fund. The goal here is to set aside a retirement fund where you simply accumulate money (and earn interest on it) with the hope of saving enough to one day retire. You can build returns over time, which are usually much higher than the interest earned on a typical savings account. That said, it’s a long-term strategy and your money may be locked in for a specific period of time.
4. Creating a portfolio of multiple investments with different levels of risk. The money you put in banks is unlikely to yield big returns and is likely to lose value over time with inflation. So, to increase the value of your money, invest it. Where? A few common places people invest include mutual funds, stocks, or bonds. ?

These are a few strategies I’ve learned along the way, but I’m no expert on this topic. So, here's an article from a financial expert to inspire you: How to Make Smart Investments: A Beginner’s Guide by Matthew Blume.

Like what you just read? Our team of global editors shares personal stories, practical advice, and fun stuff from the internet in a weekly version of this newsletter,?sign up here!