When it comes to money, the Internet is full of information and advice. A single Google search will reveal a myriad of results; from quick tips on how to get rich in six months to become a millionaire by investing in stocks, the information is endless.
However, what happens once this wealth is acquired? No one really knows this, as there is a glaring lack of information on the topic of building sustainable wealth.
Creating lasting wealth is a challenge and there are no shortcuts or one size fits all. For entrepreneurs, the task is even more difficult because so much of their personal financial success is intrinsically linked to their business.
So how do you create lasting and lasting wealth? For entrepreneurs, the answer falls into two categories: personal and professional.
To start their startup journey, many entrepreneurs use their personal savings and family assets. And while this is standard practice for new entrepreneurs, there comes a time when the staff and the professional can no longer mix.
Entrepreneurs should strictly consider separating their personal wealth from the finances of their business. In doing so, they ensure that their fate is not constantly tied to the success or failure of their business.
Whatever financial crisis a business finds itself in, an entrepreneur must have enough personal assets to be able to continue to provide a comfortable lifestyle for himself and his family.
Also, it is important to balance sectoral risks and to ensure that there is no crossroads in terms of a company’s field of activity and personal assets.
For example, for a founder of a real estate startup, investing heavily in REITs would be a mistake, because if the sector were to face volatility, his personal and professional finances would suffer.
On the professional level, there are several ways for entrepreneurs to create lasting wealth.
Diversify the portfolio
In order to avoid the risk of near financial hemorrhage, it is imperative to explore a variety of investment options such as mutual funds, ETFs, REITs, index funds, and stocks. Diversification can help create a balanced financial portfolio of investments with variable rates of return.
In addition, startup founders should not hesitate to explore the horizon of international financial markets in order to protect their investments from the volatility of domestic markets.
Fixed income options are generally considered options for employees or retirees. However, they have several advantages for entrepreneurs looking to build long-term wealth.
Fixed income sources such as exchange traded funds, debt funds, and money market funds provide a fixed stream of returns. And compared to stock market investments, fixed income options offer safe and low risk financial security.
There are two types of fixed income: –
- Government-guaranteed fixed income investments that present almost negligible credit risk.
- Fixed income investments issued by private entities and subject to significant credit risk.
It is advisable to choose from some of the best government fixed income investment options such as listed PSU bonds, retirement savings scheme, public provident fund, and voluntary provident fund. Fixed income investments have a clear set of benefits ranging from lower risk to a steady stream of income for entrepreneurs.
Establish multiple revenue channels
Multiple sources of income can allow entrepreneurs to cover a variety of costs without running out of cash. It also provides an additional level of financial security in the event of a business failure or market volatility.
The increase in money and income also means that entrepreneurs can grow their business faster by investing in their own businesses and reinvesting more in new sources of income.
Appropriate asset allocation
The right allocation of assets can be the difference between financial success and failure. Asset classes are made up of multiple securities that face risk on multiple fronts. They can be affected by many risks such as liquidity risk, stock market fluctuations, performance of tax laws and investment durations.
Therefore, it is important to assess the level of risk tolerance and choose a combination of asset classes suited to personal needs.
Creating sustainable wealth involves a gradual build-up of monetary assets and finances that can last for more than a few years. This type of wealth approach is therefore rapidly gaining ground around the world, as it can help create an ecosystem that can give entrepreneurs a real chance to create valuable generational wealth.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)