Simple Ways to Build Wealth

                                              

As a sequel to the earlier article “Achieving Financial Freedom” in the Nov 2012 issue, we bring in another article to explain the simple ways of building wealth.

Building wealth is simple. In fact, it is so simple and can be explained in three simple statements.

1. Spend less.
2. Earn more.       
3. Invest wisely.

These are timeless wisdom and have been proved over the centuries.

We must create a gap between how much we earn and how much we spend. The twin themes of spending less and making more are not mutually exclusive but they require different mindsets.

Thrift is about living on less and requires self discipline. For some people there is a feeling of sacrifice. For others, thrift is a pleasurable journey in simplification where fulfillment results from redirecting earned income toward financial goals.

Another alternative is to raise the income side of the equation. The advantage to this approach is there is no theoretical limitation to how fast our wealth can grow because our earning capacity is unlimited.

Many wealth gurus teach the income side of the equation as the “fast path” to wealth; however, if we don’t master the spending side of the equation, we run a high risk of failure due to the common mistake of allowing spending to rise as fast as income.

The greatest wealth builders focus on both sides of the equation together. They maximize savings by controlling spending while growing income at the same time. It is the quickest path to increased savings for investment.

Your Wealth is determined By Your Habits

The reason why few people achieve wealth is because only few practice the habits that lead to wealth. As we already know, the formula is simple. The only thing is to take action with enough consistency to achieve the goal.

Here’s the formula for how this works:

Wealth = [(Small, Smart Choices) * (Consistency) * (Time)]

Procrastination is the single biggest wealth killer. Action is where the rubber meets the road. It is one thing to know what to do and it is something else to get it done. That is why habits are so important.

The distinguishing characteristic of people who achieve wealth is they manage their money well. They have good money habits. They don’t earn the most. They aren’t the smartest. They don’t have any special training. They just have good money habits.

A daily habit of thrift saves small amounts every day that compound and grow over long periods of time to become substantial wealth. A daily habit of increasing your earning capacity through training and education will add small amounts every day to your income potential.

We don’t have to intellectualize the process or overcome massive obstacles. We don’t have to get ready to get ready. Instead, we just start today by adopting one habit that serves your wealth goals. Here are some potential starting points.

1. Sign up for an automatic savings program.
2. Prepay a small amount on your mortgage loan.
3. Find an unnecessary expense and eliminate it.
4. Repair something instead of replacing it.
5. Develop a niche expertise in your profession that commands a higher wage.

Just pick one habit and start today. Practice the habit until it becomes permanent, then pick another habit and do it again. Then another and another until you can see your wealth grow.

To recap,

The formula for wealth creation is simple

–        Spend less than we make and invest the difference wisely.

–        The mechanism to take action on the formula and produce results is equally simple – adopt wealth building habits.

–        Here’s how it looks like.

Wealth = [(Small, Smart Choices) * (Consistency) * (Time)]