Building wealth is one of the topics that attracts lots of debate and opinion, many people will associate it to stock & unit trust investment, property investment, spending weeks attending investment workshops and reading through mountains of financial information.
Building wealth is simple, it can boil down to 2 simple practices. Sound simple? Yes & No. They are simple to understand, but not easy to follow. The 2 simple practices are:
Spend less than you make and invest the difference wisely.
Make step 1 your habits and be persistent throughout your financial journey.
You might be disappointed reading this. Expecting something different, some fantastic ideas that can produce breakthrough results. But if you want to build your wealth with the highest possibility of success, this is the essential wisdom you need to know.
1. Spend less than you make and invest the difference wisely
This summarises how you should manage your money so that you grow your wealth.
This makes a simple equation: Income – Spending = Savings . And once you have your saving, you invest your saving to produce more income for you.
From this equation, notice that there are 3 essential ideas will contribute to the end result:
- Earn more
- Spend less
- Invest wisely
This is 3 separated yet connected ideas that you need to build your habit around it.
- Work your way to increase your income. Changing jobs, getting raise, or starting a business. Your earning capacity is unlimited, so theoretically, there is no limit on how fast you can make your money.
- However, if you don’t master the spending side of this equation, you still run a high risk of failure. It is too common to see that high income earner spend as fast as they make their money. We are not sharing the idea of not spending at all, but mindful spending. Spend your money on things that is important to you and save mercilessly on things that don’t. So have your spending plan.You got to focus on both of the above from the very beginning. Maximize your savings by controlling spending while grows your income at the same time. This is the most certain path to increase your savings so that you can kick start your investment.
- Once you have accumulated some savings. Start invests wisely. The purpose of investing is to make your money work harder for you with the bottom line of beating inflation. Therefore, risk management is important in investing. This is a whole long topic. If you are not a smart and knowledgeable investors, do not have time and interest to read through mountains of charts and reports, talk to your financial adviser to explore available options. I prefer investing in a diversified portfolio consistently, rather than spending weeks studying and chasing stocks. Effort and time spent focusing in own profession or business venture will always generate more income than a pure investing.
So, the concept of building wealth is actually simple. Just spend less than you make and invest the difference wisely. Keep repeating it until you achieve your financial freedom. Being said so, it is not easy. Not many people can keep to it throughout their financial journey.
2. Make step 1 your habits and be consistent throughout your financial journey.
As you already know, spend less than you make and invest the difference wisely is a simple concept. The only remaining is to get started and to be consistent. And this is where the challenge begins.
Procrastination is the single biggest killer. You know you need to save, but there is always some other priority and reason. You know you need to invest, but decide to put aside until you master it, yet haven’t got time to do so. The best time to start is now. The longer time you have, the more you will be benefited from the power of compounding.
Knowing what to do is important, but start doing it will bring you there. There are too many examples where ordinary worker accumulated their millions while people who once successful in their career go broke. They don’t earn the most. They aren’t the smartest. They don’t have any special training. They just have good money habits.
It may be painful to put money aside for saving each month, because this limits the money you can spend. And if you have to make this decision every month, you are setting yourselves to fail. This can be overcome by automating your saving and investment. Give in some time, talk to your financial adviser to explore available savings and investment options. Set up standing instruction to automatically transfer your target savings amount to the savings or investment account that suits you. By having this in place, you put the system to do the right things for you for years to come.
Building wealth is a simple process, but the attitude and habits cause the action which produces the result. You don’t have to get ready to get started. Start today and practice it until it becomes permanent. You’ll see your wealth grow.
Get connected with a Licensed financial adviser and start up something. You’re not getting any younger. Keep your plan flexible, so that you can tweak it to your specific situation if needed.