Building wealth is an ongoing process. It doesn’t happen overnight; instead it takes discipline and patience over a long period of time. Here are ten principles that can help you become wealthy.
1. Start Saving Early
The best time to get invested was yesterday, the next best time is today.
The sooner you start, the more time your money has to grow. Compound interest is like a snowball rolling down a hill. The longer it rolls, the bigger it gets. If you start early, you have the potential to have twice as much saved up as someone who started 10 years later.
2. Pay Yourself First
This is such simple advice, but so few people follow it. If you pay yourself first you don’t have to worry about budgeting, you just spend whatever’s left over.
Early on, your saving rate is more important than your rate of return. You can see that even if you double your return for 20 years, the saver with the higher savings rate still comes out on top. Automate your savings and strive to put away 15% or more of your income annually.
3. Put Your Money to Work
Many people have money sitting in the bank earning less than 1%. This is great for money you may need in the short term but it’s not a good spot for long term money.
Your money has the potential to make more than you. Let’s say you have $1,000,000 invested and it goes up 10%, you made $100,000. This is more money than many people make in a year.
Of course, this can go both ways short term. But if you have a long time horizon, the stock market has had an average annual return of around 10%.
4. Build Protection
The most important part of every plan is planning on your plan not going according to plan.
One of the largest points of failure is living paycheck to paycheck. I always recommend saving 3-6 months expenses in cash to give your breathing room should something happen.
Another part of safety is covering your insurable needs. When used correctly, insurance can be a great way to protect your wealth.
5. Make More Money
Saving and/or cutting back is great, but increasing your income is better.
People will drive across town to save money on a new toaster, but won’t spend a few hours preparing for a salary negotiation that is 100x more impactful. Look for ways to advance your career or find additional streams of income.
6. Use Credit Wisely
Americans currently owe $1 trillion in credit card debt, with the average balance of $9,600. Carrying high interest credit card debt is a great way to negatively compound your wealth and should be avoided at all costs. Make sure to pay off your balance every month.
But credit itself is important. Interest costs on your mortgage, car loans, student loans , etc. will be one of your largest expenses in your lifetime. Having a high credit score can save you money on your interest.
7. Focus on Independence
Your main goal shouldn’t be to retire by a certain date. It should be getting to a point where you don’t have to worry about money anymore.
The highest form of wealth is the ability to wake up and say I can do whatever I want today. That may be work, travel, your hobbies, or anything that makes you happy. To me, that is the most important goal.
8. Don’t Compare Yourself
The reality is there will always be someone richer than you. Some by skill and some by luck. Avoid “keeping up with the Joneses” and instead focus on how you are doing in relation to your financial potential.
9. Don’t Panic
Don’t be greedy either. Stock markets cannot go up or come down forever. There will always be something to worry about. If you look at any period in history, there was always a reason to sell..
10. Be patient
We live in an era where we desire instant gratification and satisfaction. We want our deliveries to come the next day, we want investments that double over night, people don’t want to wait.
There is no such thing as easy money. The hot trend or get rich quick schemes almost never end well. Building wealth takes time and discipline.
Sources and Disclaimers:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.