How To Begin To Build Wealth

Advisers will often stress the importance of saving a certain percentage of your income each month. Some experts suggest 10%, while others say up to 25%, but they seldom say what you should do with the savings once you put them aside.

This is where the difference between building real wealth and just saving money on deposit. If you just save 10% of your income each year, the money will add up over time, and you will end up with a good nest egg, but if you invest the money that you save in a fairly risk free option, you can build a sizable fund, that will begin earning more in interest than you contribute to it each month. This is where you begin to accumulate true wealth, using the “miracle” of compound interest

Start Investing Money

Investing money is often a learned behaviour. Some people come from families where they were taught savings strategies from a young age, but it never went farther than putting the money into a high-interest savings account at the bank. Some people come from families where savings was not taught, and the family always lived spending all their income. And some people come from families where investing is part of financial planning, and it’s taught and discussed when parents teach their Children about financial responsibility. The important thing to realise is that you can decide what environment and strategy you want to take once you are an adult and you have your own family.

I gave all my kids when they were small but big enough to understand, three different coloured boxes: so whenever they got any money they had to put some in EACH – one for spending, one for saving, and one for charity. If they ever asked me to buy them something, we looked in their “spending” box. If not enough, we looked in their “savings” box. If still not enough, I told them they would have to WAIT and SAVE MORE in future – not like the current generation who “demand” everything “now”….

Learn About Investing 

If you did not grow up learning about investing and your parents did not invest, it can be intimidating to start. There are so many different options to choose from. It is difficult to know if single stocks, index funds or mutual funds are better. Plus it can be difficult to predict growth and understand when you should buy and sell. The safest way to invest is to choose a few good mutual or index funds with a proven track record and then stick with them even as the market goes up and down. This allows you to recover from the low points in the market, and it protects you from market fluctuations. When you look at a mutual fund you want to choose one that has been open for several years and has a history of earning a profit more than losing money.

Get Help From A Financial Planner

An Independent Financial Adviser can help you to understand the different products available and the risks associated with each one. The higher the return generally means that there is more risk involved. When you are in your 20s, you can choose products with a higher rate of return because you have the opportunity to wait for the market to recover. As you grow closer to retirement, you may way to work with a Wealth Planner to help you switch to more conservative investments to protect your money. Your Financial Planner should be able to explain all of this to you.

Set Investing Targets Before You Set Goals

If you are focused on building wealth, it helps to have a clear goal in mind like financial independence or early retirement as your goal. Determine how much you want to put into investments each month as your target. You can set up accounts that allow you to make contributions each month, which is the easiest way to make sure you continue to invest. A monthly target can help you to reach goals that you have for retirement. Additionally, it is important that you make progress each month. If you are dipping into your savings regularly or you skip a month at Christmas (for example), you may be hurting yourself more than you realise. 

Keep Your Finances In Order

Before you begin investing you should be debt-free since the amount you pay in interest is usually more than what you will earn on your investments. You should also save an emergency fund that you do not put into investments, which should be three months’ income at least. You may also save up for things like home repairs and holidays. A contribution of 10% into investments is a good target to start with, especially if it is on top of your retirement savings. This strategy will help you really begin to build wealth and retire comfortably, and as a wise man once said: “Pay Yourself First”!

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