Managing Income to Build Wealth
Managing our income and expenses effectively paves the way for us to grow our savings and investments, and thus to build long-term 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
We can accumulate wealth over time by managing our income through the use and practice of a proper set of strategies. Akin to running a marathon, building wealth should have a long-term goal in mind, and thus require much patience and discipline.
Here are some ways to grow our wealth by effectively managing our income:
- Manage our expenses
One way to build our savings is by carefully managing our expenses. For a start, individuals can plan their expenditure 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 thus, spending habits. For example, travelling may be a source of contentment for one person, but for another person with a comparable income, it might be further down the line of priorities, and even amount to an expensive luxury. In short, notwithstanding the income we earn, our lifestyles and values will ultimately influence how we spend.
- Invest wisely
While it is true that oftentimes, our life circumstances influence how much we can save and invest, it is always good to allocate an amount of money each month to invest. This is because the investment of our savings is the key to building long-term 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 fixed income 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, asset categories, industries and geographical locations. Meanwhile, investors seeking annual income may consider investing in fixed income funds
- Stay aligned with our investment risk 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 better manage our risks. 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 to ensure that they remain in line with our objectives and risk tolerance.
Conclusion
In summary, building wealth is about managing our income well to accumulate savings which we can then invest in a diversified portfolio of assets to achieve our long-term financial goals. Among others, unit trust funds serve as a viable option to consider as they are professionally managed and provide effective diversification as well as the opportunity to enjoy competitive returns. Additionally, we can also choose from a wide variety of unit trust funds to build a portfolio that reflects our individual needs, risk tolerance, investment objectives as well as return expectations.
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.