Attaining Financial Stability
Practical Ways to Build Wealth
Let us start off by clarifying that building wealth is not synonymous with saving. Fortune Builders defines ‘Building Wealth’ as the process of generating long-term income through multiple sources. On the other hand, ‘Saving’ is the consistent deposit of the money that a person has left over after subtracting their expenses from their disposable income. Most persons have not been trained to identify the difference and believe that wealth can be gained through consistent saving but building wealth, as the definition implies, is the consistent regeneration of wealth — through multiple sources.
My story of financial health began like every single person's. Four to five years ago, I did not have a dollar to my name. I was living from paycheck to paycheck. I had saved and taken a loan for a bad investment that had to be dispensed with, so I used my savings to get out of the loan because, in general, I hated loans. I felt liberated that I was out of the loan, but at the same time, I was broke and had to begin anew.
Right about this time in the story, you would have already realised something wrong with this picture. I had to begin anew. This is what saving is like. You save, then you spend it, whether it’s for medical, family or whatever reason you spend, and then you have to build it again. Then you save, and you repeat the cycle. You’re not building wealth, you’re locking yourself in a cycle of poverty. Your only hope is to increase your savings quantity, so in the hopes of an emergency, it would have a limited impact on your financial stability. This is not sustainable.
Another difference between saving and building wealth based on definitions is saving implies that you must have an income from a stable job. On the other hand, building wealth suggests that an individual can continue to build wealth even while not working. More often than not, people who rely on savings find themselves seeking employment long after attaining retirement because they soon realise that their savings are not sufficient to cover their living expenses.
I have compiled six points that will help you start your path to living on interest and living a long healthy, financially secure life.
Point 1
Your Financial Mantra: Every Account is an Investment. Put it in your mind that if you are going to deposit your money anywhere, you are going to invest your money. You should therefore refrain from putting money in places that will give you nothing in return. Yes, this also implies that you should not have money hiding away under your mattress or in a coffee jar.
Your money is supposed to be making you money. If it will not be generating more money, then it should not be there. This includes not putting money in “morgue” financial institutions that offer you nothing but a resting place for your money and accounts that generate no income, such as interest or dividends.
Build wealth by making your money work for you.
Point 2
Research your financial institutions. This is a separate point because this will train you to be deliberate about where you put your money. Before, you have been thinking of deposits and savings, but now you are being asked to consider fees, interest rates, different types of savings accounts, the value of deposits, shares, bonds and loans.
Some institutions have fees for owning an account. Find out what these service fees are. These fees can outweigh the returns on the investment if you are not careful.
What is the interest rate for investing my money through this account? You need to know how much. You will be told in percentage but calculate for yourself in practical value what you would be receiving if you invested at an amount that is feasible for you and compare it with the rates of other institutions.
The product matters. Take the time to understand the product. What is the minimum deposit on the account? What is required of you monthly from this account, and what services will be offered to you for this account? Another question for some accounts is what benefits this account will bring me for taxation purposes. Understand tax laws and use strategies to minimize your tax liability, such as taking advantage of tax-advantaged accounts.
Your primary goal is to build your own wealth.
Point 3
Your loans must also build wealth. For a long time, I feared loans because I felt they took more from me than they gave until I learned how to invest through loans. The first thing you should learn is that the accounts matter where your loan deposit is. Is it your shares, savings or your deposit? If it is sitting on your deposit, then that means you potentially have money locked for five to twenty years, making no money.
Remember, you are there to build your wealth. Your money must make money.
If you have found a financial institution with good interest rates (returns on investment) and low-interest rates for loans, you will essentially turn your loan into a fixed deposit account. Unlike the fixed deposit account, which will give you the returns at the end of the term, you will be getting your interest returns annually or quarterly on your deposit for your use — or reinvestment.
The second point about loans — Resist making repayments that are too large to sustain. Yes, I know you want to finish paying off your loan but your financial comfort is also important. Select the lowest or intermediate repayment amount, and during the course of your payment, if you can afford to pay more, then do so at your own will. And if you are going to pay more, place it on the loan principal instead.
The third point is to always reinvest a small portion of your loan if it is possible. Loans are closely monitored by financial institutions because of delinquent and irresponsible borrowers, but be wise with your spending even when the money is readily available to you.
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Point 4
Avoid putting yourself in situations where you do not have a periodical release of finance. We love the term consolidating our loans, refinancing and fixed deposits, and retirement funds. You think long-term and that is great, but what happens while building that long-term plan? You consolidate your loan, but what happens to that deposit from your earlier loan? You refinance, but what method is used for your interest payment on the loan?
What this does is it allows you access to money periodically, whereby you can either reinvest or provide economic relief. Note, you do not have to use the same formula but it is simply to show you that your investments are supposed to work in harmony to provide economic relief throughout your life and not only at retirement.
Another point to note is to build wealth, your reliance should be on the return on investment (ROI), which you will continuously reinvest if you create an environment where it will be released to you periodically.
Point 5
Your insurance is an investment. Treat your insurance companies like you are walking into an investment bank. Yes, they provide you with a service, but what are the rewards you will gain? Select insurance companies that provide you with some form of reward attached to the normal coverage provided. The last thing you need is to continuously make premiums to an insurance company that provides you with nothing over the years except coverage in the event of an incident. This is money that will be lost to you if there is no incident. This will eventually lead to frustration.
You need access to money, money that can be reinvested or meet a need. If you must have insurance, be certain you are gaining value from it.
Point 6
Seek an alternate source of revenue. Understand that building wealth is about building multiple sources of revenue, and in this evolving technological environment, it has never been easier to build a new source of revenue/income or start a new business. One does not have to provide tangible goods to build a new revenue stream. A person can choose to provide virtual services or digital goods to generate an income. There is no shortage of people with needs or want of services.
In the coming articles, we will discuss practical ways to start a business on a budget and develop an entrepreneurial mindset, but for now, here are some statistics about decisions millionaires made about their careers.
CNBC’s Tom Corley Millionaire Survey
All decided to make a mid-to-late career pivots away from linear, traditional career paths to open new doors in their careers.
51% were entrepreneurs, 28% had conventional 9-to-5 jobs and 18% were high-level corporate executives
Key Takeaways
- To ‘Build Wealth’, your money has to generate more money, and you do this through investing your money.
- You do not need a large income or a large savings base to start building wealth.
- You need to create a financial environment that generates money even when you are not working.
- Your financial plan must provide you with economic relief throughout your life and not only at retirement.
Every Account is an Investment!
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