Tuesday, November 14, 2017
How to Successfully Build Wealth: 5 Tips
There is no magic secret to building wealth. It a slow and steady process that favors patient individuals. This makes it difficult to understand for those of us who live in the fast-paced world of 2017. My goal is to break wealth down into easy, manageable steps. You might not be able to comprehend having a million dollars in the bank. You can work on making more money. It is the small steps that will lead to great wealth. The problem with our society is that it has made being wealthy out to be an exclusive club where entry is impossible. That couldn’t be further from the truth. Everyone can be wealthy, as long as they work hard and exercise good judgment. In this post, I will describe 5 ways to successfully build wealth. These are things we all can do to achieve our goals. Let’s get started.
1) Spend less than you make
I speak about running a balanced budget a lot and there is a reason for it. There is nothing you can do in your financial life that is more important than spending less money than you make. Nothing! It is the foundation for all abilities you will have moving forward. You cannot save money if you run a deficit every month. You cannot protect your family if you run a deficit every month. You cannot achieve your goals for the future if you run a deficit every month. You must be saving money every month to build wealth and the only way you can do that is by having a positive net balance at the end of every month. There is just no other way, believe me, I have tried.
13 Wastes of Your Money – Budget Boss
2) Invest the difference appropriately
When you have finally achieved a balanced monthly budget, you then must save money and invest it for growth. You will not achieve your long-term goals without the effects of compound interest. Don’t believe me? Check out this comparison:
Person Saving $200/month for 35 years (Age 30-65) with 0% interest
$84,000
Person Saving $200/month for 35 years (Age 30-65) with 5% interest
$222,639.55
Person Saving $200/month for 35 years (Age 30-65) with 10% interest
$685,691.65
You must have your money work for you by getting exposure to the market. Whether you are a conservative, moderate or aggressive investor there are solutions for you. Just saving the money will not suffice, however. Find out what type of investor you are and put those monthly savings contributions in an investment account. You will be amazed of the growth of your money and may even be able to live off the interest one day.
Saving Versus Investing Your Money – The Balance
3) Avoid debt like the plague
Going back to point one, you must avoid running a negative balance every month. The reason why this is so important is that there is nothing that will kill your wealth potential more than debt. For so many reasons debt screws with your wealth. I will focus on these two reasons:
a) Reverse Compound Interest
Just like I mentioned in the previous point, compound interest is an amazing thing. It is so amazing that the banks use it to keep you in debt. You make compound interest off your savings and investments. The bank’s make it off what you owe them. Check this out:
Credit Card with $10,000 balance at 19% interest rate paying $200 monthly minimum payment:
9 years and 4 months to pay off, $9,795.35 in interest paid
That’s right, you will pay back almost as much interest as the debt was in the first place! Ever wonder how every single month the bank’s turn record profits? That’s how, because we let them. Reverse compound interest is no joke!
b) Your time is valuable
Take that same amount of time and invest that money you are paying towards the debt and see what happens:
$200 monthly contribution into a TFSA, 8% return, compounded annually, for 9 years:
$31,268.84
So instead of paying almost 20K, you make over 30K. That’s a 50K swing! Your time and money are very, very, very, very valuable. Having debt wastes both. Avoid debt like the plague.
The Cold Hard Truth About Compound Interest – Fairstone Canada
4) Make wise decisions
We are constantly being bombarded with people trying to get us to do things that cost us money. Buy this, go there, invest in this. You must understand that making wise decisions based on a long-term mentality is what will succeed for you. Some examples of good decisions are saving money every month, buying a home you can afford, upgrading your education, working extra, and investing your money. Some examples of bad decisions are investing only in stocks, not covering yourself with insurance, taking friends advice on money, trying to get rich quick, borrowing to invest (leveraging), and working reduced hours to enjoy life while you are young. You have to understand that the small decisions you make every day will affect your monthly results. Your monthly results will impact your yearly results. Your yearly results will impact your future. Stringing together too many bad years in a row will lead to you not achieving your goals and it all starts with sound decision making.
Making Good Financial Decisions – Success With Money
5) Think Efficiency
Having your time and money invested efficiently is very important. Therefore, I am an advocate to the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP). Now if you like paying more taxes skip this part, but if you are like me and like saving money listen up. Everyone should have a TFSA and the reason is simple, no taxes paid. Once you start making more income, gravitate the to RRSP so you can get that sweet return every spring. You can take that return and invest more or use it to enjoy life. Think of it as your reward to yourself for planning for your future. The richest people in the world focus on efficiency. Efficiently managing their time through working, saving and investing and efficiently managing their money through proper investment vehicles. If you are constantly trying to be the best, most efficient version of yourself, you will be wealthy beyond your dreams.
5 Tax-Advantaged Places to Park Your Money – Budget Boss
Building wealth is no accident. It takes many of the attributes that make up successful individuals. Being good at money is no different than being good at life. You need hard work, perseverance, patience, dedication, common-sense and strength. Having those attributes will guide you to building wealth that would never think possible.
Thanks for tuning into our post today as Wealth Week at Budget Boss continues. If you want help establishing a plan to build your wealth, message me at joe@budgetboss.ca and we can go over some methods. Have a great day friends!
“The very first step to building wealth is to spend less than you make.” – Brian Koslow
Email – joe@budgetboss.ca
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