Wealth Building Tips: Big salary is not necessary to become rich! If you adopt these 5 ‘Golden Rules’ of Chartered Accountants (CA), you will never face shortage of money.

In modern lifestyle, it is often assumed that financial freedom and immense wealth are directly related to a person’s monthly salary or big package. However, the professional experiences of financial planners and experienced Chartered Accountants (CAs) tell a completely different story. There are thousands of such cases every year where even highly salaried professionals earning lakhs of rupees are seen struggling to pay credit card bills and loan EMIs at the end of the month, while many disciplined salaried people with average incomes end up building a net wealth corpus of several crores of rupees by the time they reach retirement age.

Financial experts clearly say that wealth building is not a one-day miracle or a lottery, but it is the cumulative result of daily financial decisions and financial behavior. If a person consistently follows basic financial rules, he can make himself secure and prosperous, starting from any financial level. Let us know in detail which are those 5 financial golden rules which you can include in your daily routine to create permanent wealth.

The first thing most people do when they get their salary at the beginning of the month is pay their house rent, EMIs, utility bills and entertainment expenses and put whatever is left in their savings or investment accounts. This approach is considered the biggest mistake financially. Famous investor Warren Buffett’s famous formula is that do not save what is left after spending, but spend what is left after saving and investing.

Chartered Accountants follow this principle Budgeting rule of 50:30:20 Let’s make it practical through:

• 50% Basic Needs: A maximum of 50 percent of your total in-hand salary should go towards essential expenses like food, house rent, children’s school fees, electricity-water bills and necessary medical insurance.

• 30% Lifestyle and Wants: 30 per cent should be earmarked for personal desires like dining out, holidays, entertainment, movies and gadgets.

• 20% Mandatory Investment (Savings & Investment): A minimum of 20 per cent should be automatically invested in equity mutual funds (SIP), PPF, NPS or index funds as soon as the salary comes into the account.

As your income increases, you should try to change this ratio to 50:20:30 (i.e. 30% investment).

The first step most people make when they get a career promotion and salary increase is to immediately upgrade their lifestyle—like suddenly taking on a more expensive car EMI, taking up a costly club membership or increasing spending on expensive gadgets. In financial terminology this is called ‘lifestyle creep’ or ‘lifestyle inflation’.

CAs and financial advisors suggest not to change your basic lifestyle immediately when the salary increases. If your income increases by 10% or 15% annually, add at least 50 to 70 percent of that additional income as a ‘step-up’ to your existing investment installments (SIP). When you invest your increasing income in compounding assets instead of consumption, the pace of wealth creation speeds up manifold and you are free from the ‘rat race’ forever.

Albert Einstein called compounding the eighth wonder of the world. The entire mathematics of compounding depends on how much time you give your money to grow, not on how big the amount you invested initially.

If a 22-year-old starts a SIP of just Rs 5,000 per month at the beginning of his job with an expected annual return of 12%, his total investment by the age of 60 will be just Rs 22.8 lakh, while his expected total fund can become more than Rs 18 crore. At the same time, if a person starts investing Rs 15,000 per month at the age of 35, then despite investing more amount, he is not able to reach even close to this figure due to lack of time. Therefore, ‘time in the market’ is more important than ‘timing’ in the market.

The biggest hurdle towards building wealth is debt that constantly drains money from your bank account in the form of interest. Chartered accountants divide debt into two categories:

• Good Debt: A loan that helps in building an asset or generates future income, such as an education loan at a low interest rate or a home loan within reasonable limits, which also enjoys income tax exemption.

• Bad Debt: Personal loans taken for non-essential consumer goods, foreign trips, expensive mobile phones or clothes, ‘Buy Now Pay Later’ (BNPL) and credit card roll-over interest.

Annual interest ranging from 36 to 42 percent is charged on the outstanding amount on credit cards. If you are stuck in this debt trap, it makes financial sense to settle expensive debts first before making any kind of investment.

As important as it is to accumulate wealth, it is even more important to protect that accumulated capital from unexpected crises. Many families are forced to sell off years of savings and investments at throwaway prices due to a serious medical emergency or sudden job loss.

A complete financial security cycle must essentially have two components:

First, Emergency Fundwhich should be equal to at least 6 months of essential expenses (rent, ration, EMI) of you and your family. This money should always be kept in high liquidity options like liquid mutual funds or bank fixed deposits (FD).

Second, Adequate health and term insurance. The main earning member of the family should have pure term insurance of at least 15 to 20 times his annual income and a comprehensive floater health insurance for the entire family. When your security shield is strong, your long-term investments remain safe through any ups and downs in the market.