Managing Income to Build Wealth
There are many ways and strategies to build wealth. Most billionaires amassed their wealth through starting and growing their businesses. However, for most of us, building wealth involves effectively managing our income streams to create savings for investments.
Although the terms, income and wealth are used almost in similar contexts, they are not the same thing.
Income is the steady flow of money earned by an individual or household. It is typically used to pay expenses (e.g. bills, food, etc.) with the balance saved on a regular basis. Meanwhile, wealth is the value of assets owned by a household or an individual. These assets are often built from savings and/or investments.
Building Wealth Through Savings and Investments
Building wealth is akin to running a marathon as it requires patience and discipline. With this in mind, having a proper set of strategies to manage our income can help us to accumulate wealth over time.
Here are some ways to grow our wealth by effectively managing our income:
- Build up savings
One way to build our savings is by carefully planning our spending. Individuals can start by identifying what they really need as opposed to what they merely want.
However, there is a fine line between our needs and wants as different people have different priorities and hence, spending habits. For example, travelling may be a source of contentment for a person, but for another person with a comparable income, it can be an expensive luxury. In short, our lifestyles and values will influence how we manage our spending.
- Invest wisely
While it is true that often times our life circumstances influence how much we can save and invest, it is always good to allocate some amount of money for investing. This is because investment of savings is the key to enhancing a person’s wealth.
We can invest in a range of assets (e.g. equities, bonds, money market instruments, fixed deposits, etc.) that generate differing returns on investments for various levels of risk. For instance, fixed deposits and money market instruments provide steady albeit low returns. In comparison, equity and bond investments offer potentially higher returns over the long term.
Although equity investments are relatively more volatile than fixed deposits and money market instruments, investors can mitigate the volatility of returns by diversifying their equity portfolios across various markets and sectors. Meanwhile, investors seeking annual income may consider investing in bond funds.
- Align your portfolio to your investment profile
As our personal financial situations may evolve with time (e.g. approaching retirement), giving our investment portfolios an occasional tune-up may help to manage our risks well. In addition, market conditions may also alter the mix of our assets over time. Thus, periodic rebalancing of our portfolios can help to realign our investments in line with our objectives and risk tolerance.
In summary, building wealth entails managing our income well to accumulate savings and investing them in various assets over the long term. As a form of investment, unit trust funds provide a convenient and flexible avenue for investors to build their wealth.
This article is prepared solely for educational and awareness purposes and should not be construed as an offer or a solicitation of an offer to purchase or subscribe to products offered by Public Mutual. No representation or warranty is made by Public Mutual, nor is there acceptance of any responsibility or liability as to the accuracy, completeness or correctness of the information contained herein.