We’d all love to get rich quick to buy a house or car or go on holiday, but most of us have to get a bank loan to do that because becoming wealthy takes time and effort. Most people involved in the financial sector would have heard of The Richest Man in Babylon, a book by George Samuel Clason published in 1926, in which he offers some great advice for anyone wanting to become wealthy. The book, which has become a bit of a bible in financial circles, is a collection of tales about men who have become solvent by saving one-tenth of all they earn, spending seven-tenths on household expenses and using the last two-tenths to pay the bills. Some of the following tips and strategies come from ideas in the book, and others come from various sources.
Pay Yourself First
The first thing you must do to become wealthy is to pay yourself first – it’s a simple message, but it’s powerful. To accumulate wealth you have to save what you’ve earned, and you can do that by paying yourself 10 percent of your wages before you pay bills, mortgage payments (if you can) and household expenses. It’s a simple rule; the wealthy pay themselves first, the poor don’t. No matter how much or how little you earn, this rule should apply if you want to become wealthy. A great way to make sure you stay on track is to automate your finances, according to self-made millionaire David Bach. By making your payments automatic, you can pay yourself first by sending 10 percent to your savings account or investment accounts and then see to the rest.
Live below your means
Too many of us live beyond our means, but to get wealthy, you have to do the opposite which means you need to control what you spend. If you’ve paid yourself 10 percent, then you have 90 percent of your earnings left. To manage what’s left you need a strategy to make good use of it. You’ll need to budget, most especially if you get a pay rise or begin to bring in more money and this is because of lifestyle creep. The more you earn, the more things you think you ‘need’ when you don’t need them at all. You’re just splurging. If you stick to the plan, there’s enough money left in the 90 percent to buy the things you need.
Make your cash work for you
Invest, invest, invest, and you should start after you’ve built your savings up and also when you have created an emergency fund which should generally take about nine months of accumulation. Creating an emergency fund is essential for the down times. The golden rule here is never invest in something you don’t entirely understand. You can invest in real estate, businesses, or the stock market, but whichever one/s you choose, you must make sure they’re as safe as possible and will bring in a return. The best frame of mind for investing is to ask yourself if the Stock Exchange was to close for five years, ‘would I still be happy to own stock?’ Also, always leave a margin of safety. Borrowing money to buy stocks is the way smart people go broke, according to Warren Buffet, one of the most successful investors of all time.
Insure your wealth as well as your home investment
Insurance can help you to take care of your wealth by taking on any potential losses and guarding your financial situation, just as home insurance protects your home. There are many kinds of insurance on the market so shop around for the one that suits your particular situation. Your home is the most significant investment you’re likely to make. If you already own a home you’re one step ahead, but if you’re renting, remember it’s better to rent until you can save a healthy deposit for buying your first home, because too many people take on a massive mortgage before they’re ready and they end up losing it if they’ve bitten off more than they can chew. You need to live below your means and rent or buy a home that you can comfortably afford.
Plan for your retirement
To ensure you have a future income you need a retirement plan. Someone aged 25 on $40,000 a year with an annual pay rise of 3 percent will have made about $3 million at age 65. It’s worth thinking about because to retire in comfort, you need a healthy Superannuation plan. You can automate a sum to go into your Super each week to top up what your employer and the government provides. There are also other retirement investment plans, so shop around to find one that suits you. You’re never too young to start planning for your future retirement and doing that means you can take advantage of compound interest.
Invest in yourself
The best way to increase your wages is to invest in yourself, in your education and skills, and striving to develop your abilities. In this age of information, knowledge is literally at your fingertips and all it takes is punching a question into a search engine. Act now, don’t procrastinate, and your wealth will increase as your salary grows. Staying healthy is a smart idea so you can learn to change your lifestyle and diet and get more exercise. It all adds to your ability to become wealthy by working harder.
Keep track of your wealth
The truth is a great help when it comes to wealth, so you need to know exactly where you stand financially. You can do that by keeping track of your situation. It can be hard because you have to face the truth of how much you earn and how much you spend so you can see where you’re going. Wealthy people know precisely what their net worth is and poor people have no idea or don’t care much about tracking assets and liabilities. Use a spreadsheet to track all your earnings and expenses and add them up at the end of each month. It’s vital to know these things if you want to become wealthy.
If you make a mistake, learn and move on
You can be rich, or you can be right, but you can’t be both. Don’t waste precious time arguing. If you’ve made a mistake, own it and don’t resist suggestions for improvement, but follow the process and you’ll be amazed at the results. If you want to create wealth, it’s no good doing what most people do when they make a boo-boo – it’s no good trying to hide the mistake; self-justify and try to explain it away rather than admitting you were wrong and learning from it.
Don’t let the pursuit of perfection paralyse you
If you chase perfection it will only freeze your creativity which will then prevent you from moving forward, so put your energy into knowing that ‘near enough is good enough’ and think about what you can do now to move on. Marketing guru says success that’s sloppy is better than perfecti
on that’s mediocre, or words to that effect, so the message is to keep moving forward because it’s not about perfection, but progress.
Money of itself is never a good motivator
Until you realise money is not a good motivator you’ll go round and round like a dog chasing its tail. Most top entrepreneurs say their main motivation was to build something that would withstand the test of time, rather than make them rich. Their motivation came from the satisfaction they gained from the work, and lasting respect from others was a much measure of success than money. Emotional sources of motivation such as the respect of your peers, the admiration of your subordinates, and the approval of your friends is a better motivator.
To avoid money minefields, remember:
- Emotional commitment always outweighs purely rational compliance
- Money is better at encouraging short-lived, self-serving behaviours than lasting achievement
- Effective commitment is invariably eroded by relying too heavily on monetary gain
Alex Morrison has been an avid digital marketer for over 10 years. In this time he has worked with a range of businesses giving him an in depth understanding of many different industries including real estate, home improvement and business strategy.
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