How to build wealth - Part 1

Building wealth is simple, It doesn’t require luck, genius, or special connections.


You don’t have to attend overpriced weekend financial seminars or pay for online courses from social media influencers promising fantastic gains. You don’t have to learn the latest tricks and gimmicks sold by slick marketers.


With building wealth the secret to it is that there is no secret. The truth behind how to build wealth is available to anyone who wants to learn, simple to understand and nobody is going to get rich selling it to you.

Everything you need to know about building wealth can be summed up in two sentences. The fact you can explain in just two sentences show how simple it is:

  1. Make more than you spend and invest the difference wisely.

  2. Develop simple daily habits that result in wealth accumulation.

If you want wealth in this lifetime, the highest probability for success is in these two sentences.

Step one to building wealth: Spend less than you make & invest the difference.

First step is to learn how to manage your personal finances, so that you can grow your assets.

With this step it is composed of three separate yet connected ideas to form one simple concept:

  1. Spend less

  2. Earn more

  3. Invest wisely

There are countless variations on how to achieve the objected of creating wealth but they all follow two simple rules:

You can reduce spending immediately through many forms of frugality.

You can increase your income through various strategies which include changing jobs, getting a raise, or starting a business.

Frugality is about living on less and requires self-discipline. For most people who try this path may find it difficult as you have a constant battle between lifestyle desires and financial freedom goals.

For others, frugality is a pleasurable journey of simplification where fulfilment results from redirecting earned income towards financial freedom goals rather than spending.

It's not uncommon for extreme frugalists to save as much as 70% of their income and achieve financial independence in less than 10 years, but is not a path for everyone.

The alternative is to raise the income side of the equation. The advantage of this approach is, in theory, no limitations to how fast your wealth can grow because your earning capability is unlimited.

The greatest wealth builders focus on both sides of the equation together. They maximise savings by controlling their spending while growing income at the same time.

Its the quickest and more certain path to increased savings for investments.

The third component to the equation - invest wisely - is also simple because everything you need to learn can be found on the internet. You don’t have to take investment seminars or build extraordinary expertise. There are two well proven methods:

  1. Paper assets: Conventional buy and hold using low cost index funds and proven asset allocation models.

  2. Real estate: Direct ownership of positive cashflow real estate.


In summuary , achieving financial freedom is really quite simple.

  1. Spend less than you make and invest the difference.

2. Rinse and repeat until the income from your investments exceeds your expenses.

Step 2 of building wealth: Wealth is determined by your habits.

The reason why so few people build wealth is because they don’t adopt habits that lead to wealth.

As you already know, the formula for how to build wealth is simple and fully proven. The only thing remaining is to take action with enough consistency to achieve this goal…and this is where the problems start to arise.

Procrastination is the single biggest killer of wealth. You plan on getting round to it tomorrow, then the day after and it's a constant cycle of ‘I'll do it tomorrow’.

Action is where the rubber meets the road. Its one thing to know what to do, and its another entirely to get it done. That’s why habits are so critical. This is why the average worker can become millionaires and lottery winners go broke.

The distinguishing characteristic of people who achieve wealth is they manage their money well. They have good money habits. They don’t necessarily earn the most, don’t have to be the smartest nor have any special training. Simply they have good money habits.

Small changes done over a long period of time can create massive results. Its an easy path to financial independence, and its the not-so-secret ‘secret’ to how to build wealth. This is why daily habits are so important.

A daily habit of frugality saves a small amount each day that compounds and grows over a long period of time to because substantial wealth.

Daily habits of increasing your earning capacity through training and education will add small amounts everyday to your income potential.

Both of these daily habits will create an increasing spread between what you spend and what you earn, which increase your wealth at an accelerating rate.

Book suggestion-

To learn more about increasing your wealth, one of the best books I would recommend is Rich dad poor dad by Robert T. Kiyosaki. This is a great book to understanding cash flow and how to view money. He talks about Assets and liabilities and how knowing the difference between the two will propel you to financial wealth.



 

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