THE ROAD TO WEALTH: WHAT HINDERS ITS CREATION?

“Anita comes from a well-to-do family.”

What is the image in our mind when we hear this? Are we talking about income level, standard of living or the assets they own?

Assets like real estate, cars, or jewellery are visible assets. Bank balance, shares, bonds and other financial instruments are discreet.

We expect the lifestyles of the well-heeled to include exotic holidays, lavish parties, 5-star dining, high-end club memberships and children studying in expensive schools. The so-called ‘well-to-do’ also spend money to maintain their ‘status’.

Understanding the distinct concepts of income, status, and wealth is crucial. It's not just about how much you earn or the lifestyle you lead, but also about the value of your assets and your net worth.

We calculate net worth as follows:

Net worth = Assets – Liabilities

If someone borrows heavily to maintain status, do you see their net worth growing or depleting? We see this happening when events like weddings are held or children are sent to study abroad with a high-interest loan from an NBFC.

Those biased towards visible but illiquid assets like real estate may leverage these assets for cash when needed. Overleveraging of assets is an indicator of the ‘status syndrome’.

WHAT IS WEALTH?

Wealth is your net worth, not income or status.

Clarity on this concept is the first step towards wealth creation.

You will endeavour to save and invest money rather than borrow. You will always have an emergency fund.

You will build assets with this approach and prevent leakage from long-term investments to meet short-term needs.

WHAT BLOCKS WEALTH CREATION?

1. FINANCIAL ILLITERACY

Income – Expenses = Savings/Investments is the wrong approach.?

It shows you have no control over cash outflows, and the amount you save varies every month.

The Income—Investments = Expenses approach shows that you have an investment plan and a budget and that you tell your money where to go.

2. EMERGENCY FUND

You save money for a house or car, and the refrigerator or air-conditioner breaks down. Since the item is essential, you withdraw money from the car fund to replace the broken gadgets.

Your child insists that he must go on that college trip, and again, you borrow from the car fund.

Your dream car will take longer to reach your garage. Meanwhile, prices may have increased, and you need to shell out more cash or opt for a car loan.

Only if you had a fund to dip in for unforeseen expenses…

3. THE SUNK-COST SYNDROME

Your money is blocked in an asset class that hasn’t performed well. But you keep waiting for someone to buy it at the expected price and miss out on other investment opportunities.

Rebalancing portfolios involves transferring funds to asset classes or plans where higher returns are expected. It must be done quickly and efficiently.

4. FRAUDS & NUDGES

The vulnerability of well-educated people to fraud surprises us.

A lack of awareness of basic safety principles causes enormous holes in our bank statements and sense of financial security.

We also need to be aware of sales strategies, such as online nudges that direct you to spend or invest in something that is not part of your financial plan.

5. RISK APPETITE AND RISK-BEARING CAPACITY

People with a high-risk appetite often overestimate their risk-bearing capacity.

They are prone to falling for Ponzi schemes, losing money in gaming and investing significantly in so-called ‘stock tips’ from finfluencers.

Investing money in products you don’t understand may be disastrous. It applies to derivative products, cryptocurrencies, NFTs and so on.

Risk needs to be well-informed and calculated.

6. LACK OF A LONG-TERM PERSPECTIVE: THE IMPORTANCE OF FORESIGHT

Think about inflation.

Think whether you want financial freedom or dependence on your spouse or children in old age.

Think about the kind of returns on investment you need to meet a financial goal and whether you are investing in the right products.

Use the Rule of 72 to calculate the required ROI. If you want to double your money in 5 years, divide 5 by 72. The expected rate of return is 14.4%, but not many investment plans promise this kind of return.? It may be wiser to extend your plan to 7 or 10 years.

7. EMOTIONAL SPENDING

The demands that loved ones make and our inability to say No often delay achieving our financial goals.

We are measured by our commitment to relationships, not financial plans. The latter may get you labelled as selfish.

The way out is not to shy away from holding money discussions. If you convince your daughter that you are saving for her higher education, she may agree to postpone the purchase of a fancy device.

It gets more complicated with parents as you feel obliged, but telling them what you have to forego might shift the perspective.

8. IT’S ALL ABOUT PERSPECTIVE

Hold meetings with your financial planner along with your spouse.

It ensures cooperation in achieving long-term objectives.

Know whom to trust and how to keep financial data confidential.

Don’t give in to a ‘bragging match’ in social gatherings.

Your financial goals are of utmost importance. Time will show you in a flattering light.

Picture yourself smiling on a mountain peak after achieving your financial goals. All those negative people are now looking up at you.

Success Story

This 22nd August, we at Snowball Financial Services were thrilled to celebrate a major milestone - crossing ?????? ???????????? ???? ???????????? ?????????? ???????????????????? (??????). It's a testament to the trust and support our clients have placed in us.

As we look ahead, we're committed to continuing our journey of providing exceptional financial solutions and building strong relationships with our clients. Thank you all for being a part of our success!

Final Thoughts

Building multigenerational wealth is not just about accumulating assets—it's about making informed decisions, avoiding common financial pitfalls, and having a clear, long-term vision. By recognizing what hinders wealth creation and taking proactive steps to overcome these barriers, you're setting yourself and future generations up for financial success.

Remember, wealth isn't built overnight; it requires discipline, continuous learning, and strategic planning. Stay focused on your financial goals, and always be ready to adapt as needed. With the right approach, the road to wealth becomes a rewarding journey.

Ready to take control of your financial future? Book a call with us today and let's start your journey towards multigenerational wealth.

Stay informed, stay disciplined, and let's build wealth together!

See you next month…

Srinivas V

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