There seems to be an aura of mystery surrounding the creation of wealth. And unfortunately, most people go through their entire working life without understanding how money really works! There is an endless amount of information available. Countless numbers of professionals have dedicated their working lives to the study of wealth creation.
However, there are two basic principles of wealth creation that must be respected if you stand any chance of building wealth and living the lifestyle you desire. These are:
This is so simple but it is the foundation of all great fortunes. It does not matter how much money you earn; if you spend more than you make not only will you never be wealthy, but you run the risk of going broke in the future!
To save more money each month, you have two options:
If you read any blogs or books on household budgets, the number one recommendation will be to reduce your expenses. Sure, there are some expenses that can be reduced or wiped out completely, but it is a futile exercise to attempt to eliminate all expenses from your life. There are two types of expenses in your life:
a) You have necessary expenses, which include expenses such as home loan, rent, groceries, utilities, school fees, medical and automotive bills. However, even big-ticket costs such as your home loan can be significantly reduced by refinancing to a better deal – talk to your trusted broker to see how this can be achieved! Furthermore, I recommend you to check out this article which outlines 5 ways you could benefit from refinancing your home loan today!
b) You also have discretionary expenses, which include nights out, holidays, expensive cars, alcohol and hobbies. These costs ordinarily add plenty of excitement to your life. Don’t get me wrong, they are difficult to cut back on, however, is of the utmost importance to do so if you wish to reach your greater goals. For example, if you are saving a deposit for your first property, you could raise the funds necessary by selling that flashy car you probably don’t need!
When most people think of increasing the amount of money they save each month, the first thing that comes into their head is to spend less. However, if possible, it is much more effective to increase the amount of money you bring into the household. Some people will disagree with me on this point, but I believe everyone has the opportunity to increase the amount they earn and depending on their circumstances, their opportunities to increase income will be different from the next person:
a) If you are an employee, you have a number of opportunities available to you. You could work more hours, you could study to make yourself more valuable to your employer, you could work hard to earn a promotion or you could consider a career change into something more lucrative.
b) If you are a business owner, you also have several opportunities available to you. You could consider what additional services could be offered to add value to new or existing clients, you could work out a way to grow your business by adding value to an even larger client base or you could recognise what business expenses don’t add value to your overall offering and swiftly removing these.
c) If you are an investor, you could consider how your existing or future investments could be best utilised in order to provide greater cash flow to you. If you aren’t an investor, you need to become one!
Now, saving money is important to growing your wealth, however, it is only the first step. You will never be wealthy simply hoarding money. This money must be invested into assets that grow at a rate faster than inflation.
In my opinion, there are three asset classes where you can invest your money into that offer the opportunity to produce wealth-creating rates of return. These are:
Buying or Building a Business
Many people have built their wealth on the back of businesses that they have started or invested in. Being in business will arguably offer the investor the greatest potential to build wealth. However, it is not easy being in business and it is important to understand that it is not only a financial decision but more so a lifestyle decision.
Stock markets globally have been a great vehicle for those choosing to grow wealth over the long term. Sure, in the short term no one knows if markets are going up, down or sideways but over the long term shares in quality companies will do very well! Many people today avoid picking individual shares and instead invest in index funds to gain instant exposure to a handful of companies.
Real estate investing is definitely my preferred vehicle for growing wealth, and for good reason! The main reason however, is that I have a very good understanding of how to create wealth through property, which is necessary no matter what asset class you choose. Check out this article where I list 10 of the best reasons why you should buy an investment property today!
So, there you have it. The very basics of wealth creation are:
Related Tag: Mortgage Investment