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The simple wealth creation strategy

The history of the world is full of rags to riches and riches to rags stories. Some were able to build wealth with very little money in hand, almost from scratch. Others lost their entire fortune.

Those who hit upon the simple secret wealth creation technique and followed the process in letter and spirit went way ahead in prosperity and success. To whom the secret didn’t unveil, or those who ignored it were doomed.

I will explain the wealth creation process with the help of graphical representations.

The wealth creation graph

So let’s begin our joyful and exciting journey to financial abundance with the following simple income-expenditure chart:

The horizontal (X-axis) is the time axis (in months or years.) The vertical (Y-axis) represents the value of money or wealth (in $ or any other currency that you use for financial transactions.) The green line (tilted upwards towards the right-hand side) depicts your income from a job, self-employment, or a business. 

(A slanting income line indicates that income generally does not remain constant in the long term. Mostly, there is a yearly increase in salary to cater to inflation. Employes also get increments in remuneration periodically due to promotion to higher grades/ pay scales. Likewise, the business income also increases each year due to the inflation factor even if there is no actual increase in sales.)

The red line, parallel to and below the income line, is the expenditure line. The graph depicts that keeping the expenditure line below the income line means you are spending less than your income. It results in saving or wealth accumulation

At a point on the time scale, the saving at that particular time (or in that month) is shown by the purple vertical line S. It is the difference between the value of income (point 2 on Y-axis) and expenditure (point 1 on Y-axis.) Hence, S=$2-$1. The lower the expenditure line from the income line more will be the saving. It should be at least 5 to 10 % lower.

Deferred spending

Saving worries most of us, as it means living at a relatively lower standard of life, despite being capable of maintaining a higher class. We are not able to establish a rationale for it.

The blue horizontal line in the graph between the income & expenditure line shows the deferred spending. It indicates that you are deferring your higher spending (to maintaining a higher class) only for a short period and not for an indefinite time. At time A, although you had the potential of spending at a level of 2$, you delayed it till time  and resorted to spending 1$ only. As a reward for pending your expenditures, you achieved a saving S. Longer the deferred spending, higher would be the saving.

It is what I term as deferred spending. Once you realize that deferred spending is only temporary and its effects in the form of wealth accumulation are longlasting, your mind comes at peace. It gives you logic and reasoning for delaying an enhanced lifestyle. 

Those of you who have studied the subject of behavioral finance know it very well the importance of keeping sentiments and emotions aside in financial planning and think logically during the entire process. You have to fine-tune your mind financially using psychological tools.

Wealth accumulation leads to wealth-creation

Saving, as a result of deferred spending, is the seed money for wealth creation. If you continue this practice month after month and year after year, you are bound to accumulate massive wealth. 

However, wealth accumulation/ savings alone is not enough to create wealth. If left uninvested, it will be badly affected by factors such as inflation and devaluation. You need to invest these savings in income-producing assets regularly. It will increase your passive income (increase the vertical distance between the income & expenditure line). It will allow you to save more and more. 

The more you save, the more should you invest, and the more you will receive passive income. At a certain point in time, you will see that your income graph will no longer be a straight inclined line. It will exponentially curve up steeply, tremendously widening the gap between income and expenditure.

This enlarged gap between income & expenditure not only indicates wealth creation but also marks an enhanced spending power. Make it a habit and continue following the process again & again until you achieve your desired net worth. In the graph above, the light green upward curved part of the income line shows the exponential increase in income. The pink vertical line represents wealth creation.

Wealth creation steps:

If you are not well conversant with graphs, follow these simple steps: spend 5-10% less than your income (save). Invest savings in income-producing assets. Generate a passive income. Keep saving & investing more and more. Enhance your lifestyle as a result of wealth creation.

Try this simple secret wealth creation formula irrespective of whatever area you belong to, what source of income/ job you have, and how much you earn. At whatever financial level you presently are, it will surely help you to enhance your net worth much higher.

Post Author: Kamran Mahmood

The author is a seasoned financial investor and a prolific writer on matters related to stock exchanges, capital markets, wealth creation, and asset management. He keeps a keen eye on the global macroeconomy, financial world, personal wealth management, and investment opportunities.

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