Building Wealth is not unlike becoming successful in your profession. It is learning, skill, discipline, application, dedication – doing the right things over and over. If you earn an income from working, it implies you have acquired knowledge and skills that added to your value and somebody else pays you for the value that you deliver.
To earn more money, you can improve your knowledge and skills.
I will take this basic premise and explain how the principles apply to creating wealth.
Let me define wealth: To me wealth is a very wide concept that goes beyond money. In fact, money is the means to wealth. Wealth is enjoying your TIME, which means you enjoy the biggest gift of all – LIFE. Wealth is freedom – freedom to choose and live the life you dream of.
This is where money fits in: you need enough money to allow you the time to live. Wealth is Financial Freedom and to me Financial Freedom implies I do not have to work if I do not want to. Financial Freedom implies enough passive or portfolio income to live my life according to my values.
Here are 6 things you can do to become wealthy.
This is my niche – sharing knowledge. If you read through my posts, you will learn about the language of money, how interest is the #1 driving force in the economy and finances, you learn about asset classes and yesterday a more in depth view of savings.
You might ask why I am so taken up with knowledge. I worked as Financial Advisor and until about a year ago I taught people how to invest in property. The one thing I realized over and over is that people do not know the basics of money.
People do not understand interest. So how can they harness interest to grow wealth if they do not understand it? They do not understand interest, and fall prey to banks and credit card companies. They stay poor.
Back to my job analogy. The more you know, the more you study in your occupation, the more you understand your field, the more valuable you become and the more income you earn.
I always advise you to use a financial advisor and not make changes to your portfolio yourself. That is good advice! At the same time I am trying to impart the knowledge you need to talk with your financial advisor and work with him or her as a team. Know and understand the language of money! Then you can become a partner in your own financial plan and not another client!
2. HAVE A PLAN
The purpose of using a financial advisor is to craft a plan. A plan implies goals. May I ask you a few questions?
- How much income do you need to be financially free – investment income enough so you can retire if you want?
- When would you like to be in that position? What is the time goal to achieve that?
- What do you have to do now, to achieve that goal?
- Do you believe that the goal is attainable?
Without goals, a plan and action, all the above will be nothing more than day dreams!
That is why you need to sit down with an advisor.
That leads to the next requirement – discipline. Without discipline, action will be very difficult. Without discipline you will do what I continuously warn against – you will change your plans every time you read something somewhere that sounds good.
Without discipline you will put your plan on hold every time there is a difficulty or when it seems that the progress is too slow.
That is why my question above is so important. Do you believe your plan is achievable?
The better you understand the money language, the better you will be able to evaluate and contribute to your plan. That can be very motivating.
4. DEFERRED GRATIFICATION
We live in a society where everything is immediate. “I want it all and I want it now!” And clever entrepreneurs know how to use this to part us from our money! Just charge it to your credit card. Or “with a easy six month payment plan you can indeed have it all now.”
I am embarrassed to say that I often paid for stuff that I forgot I had because of credit card budget accounts! Then I am also proud to say that there were things that I saved for and when I had the money, I realized I never really needed or wanted the item.
The point is, you have to accept the truth of Zig Ziglar’s famous quote: “If you do what you have to do when you have to do it, the time will come that you can do what you want to do when you want to do it.” That helps with discipline, when you think like that.
Here is another perspective, I will not buy this “thing” that I crave today, so that I can enjoy my life 10 years from now without money worries. My plan requires me to save a certain amount every month so I can have financial freedom. I will not exchange that goal for short term joy.
Another way of looking at it. Too often people spend the future for immediate satisfaction. Think about it. To have that “I-must-have-it-now” item, you are exchanging future income for something that may not have any value in the future. It happens all the time and that is why people are poor.
5. THE THING YOU MUST NOT DO
That brings me to the thing you must not do.
BEWARE OF ENTITLEMENT
Entitlement is the attitude that comes out in statements: “I work very hard, I deserve a Cappuccino each morning.” Have you ever calculated what the Cappuccino’s cost you? Especially if you pay with an overdrawn credit card?
“I work really hard for my money, I deserve a luxury holiday for a change.” It is fine, as long as the luxury holiday does not come at the expense of your savings!
We easily forget that small amounts add up to fortunes and in the process we can spend a fortune that could have made us financially free, or at least made us free sooner.
Eradicate any thoughts of entitlement that will jeopardize your financial goals. Especially if it involves any form of deferred payment! We defer gratification, not payment!
6. LIVE BELOW YOUR MEANS
This is a well known rule – do not spend more than your income. Very few people do. Go back in this post and see if you can explain why it happens. Is any of the reasons applicable to you?
Stanley in the Millionaire Next Door (a book I can really recommend) said that millionaires in the USA usually lived in a area where they could be “the Joneses.” Their standard of living was just a little bit better than the neighbors’, but not that much that the neighbors ever thought they were wealthier than the rest of the community.
You don’t need the toys of wealth to be wealthy. In my experience it is the need to show that you are wealthy that keeps people poor. There is nothing wrong with driving an old car. I have seen it often in my life. The people with the flashy lifestyles that many people envy, live on debt. They don’t own anything – they work for the banks. If they miss a day’s income, it is a financial catastrophe.
Then you get these normal people who actually almost look poor and when they open the books, they are multi-millionaires. They did not buy the toys of wealth, the invested in assets that made them independently wealthy.
They enjoy life. They have time and money.
This is the result of the previous habit. You cannot save if you live above your income.
Everything starts with saving. There is a saying “a penny saved is a penny gained.” That penny that you save, it will become your slave. You have to put it to work so that it earns the maximum returns possible.
That is why I want you to know the language of money, so that when you sit with your advisor you can ask questions, make suggestions and make informed decisions based on a realistic valuation of the advise.
It helps to automate savings with debit orders that go off your bank account soon after your salary is paid. That reduces the risk of spending money that is intended to build your financial freedom.
Be careful not to save borrowed money, though! Too often I have seen people saving money in a low interest account, while spending money on their credit cards and living on an overdrawn credit card! That is borrowing high interest money to save in a low interest account. It is moving backwards financially! It leads to poverty.
There is no way to build wealth without doing the things I have listed here.
Having said this, and it is not an excuse to not do these things, do not defer your life to “when I am rich.” It is a balance. Life is precious, we must enjoy it daily.
Find the balance, get the people who walk the road with you involved. Get professional help.
The only piece of advice in this whole post is just this: DO NOT MAKE CHANGES TO YOUR PORTFOLIO WITHOUT SPEAKING TO YOUR FINANCIAL ADVISOR. I am not a financial advisor. I am trying to share knowledge and motivate you to do what you have to do to secure your financial future. That is a very personal goal and cannot be decided by a blog post.
Please be responsible!