Rules of Wealth
What are the Rules of Wealth
Although there are different ways to create wealth, there are certain rules that apply when trying to build profits. One reason that so many people fail to build up their wealth is because really do not know how it works. And even if many do know, they lack the confidence to carry out the right plan.
One rule of wealth that most people are aware of is cutting expenses to maximize profits. And while it is a sound principle to keep your expenses to a minimum, it is important to understand where to focus your efforts. The goal is to accumulate and build assets that have long-term potential for growth. By focusing your efforts on building the right assets, the more money you will start to earn.
What follows are three general rules of wealth that you should employ when starting your run towards financial independence. Keep in mind that there are few overnight successes, but if you keep your eye on your goals and employ the following rules, you will maximize your chances to earn considerable wealth.
Keep Expenses Under Your Income Level
This sounds like a no-brainer but avoiding debt should be paramount to your goal of building assets. While some debt may not be avoided, such as purchasing a vehicle or home, you can minimize the impact by saving up a large down payment and ensuring that what is due does not exceed your monthly income gains.
If you cannot control your spending, you cannot become wealthy. It does not matter how much you make if you are spending more than you are taking in. The first step is to assess how much money you are making and then seeing where it is going every month. From the information that you gather, you can create a budget that addresses your expenses, puts back money for saving, and allows you enough room to spend a little more on the things that you want.
All too often, people create spending budgets that are far too tight and soon they break them. Much like going on a restrictive diet where most people soon crash and go back to their old eating habits, a budget that is too restrictive will also be broken.
You should view a budget as a roadmap and not a box. Look at where you are and then create a path that will let you progress towards where you want to be.
Rules of Wealth: Invest
Investing is one of the primary rules of wealth and you can start with putting money back in a savings account. Once you have examined the income and expenses, your goal should be to save a minimum of 10% of your income each month. Once you have a little breathing room with savings so that larger emergency expenses can be handled, such as a car repair or medical treatment, you can now invest into property and shares.
Property and shares are higher-risk assets, but they can reap considerable rewards when you invest wisely. Learning to invest wisely is important because if you should lose assets, you not only are losing money, but the time it took you to earn the income for the investment.
But what makes for a good investment?
Solid Reasons: In other words, you should invest in assets for good reasons, such as they have long-term growth potential, the company has a solid reputation, or the risk has been minimized such as CDs, bonds, and the like while still earning considerable growth.
But one of the more common situations that causes many people to lose money is investing in assets that are trendy. For example, consider the tech boom of the late 1990s in which people were making considerable amounts of money, only to lose most, if not all of it when the tech bubble burst. That’s because investing in the latest trend means risking assets that become overvalued.
As with the tech bubble, people realized that they were investing not in physical goods that had an inherent value, but instead digital technology that was ethereal in nature. That it was the promise of great profits that had yet to become reality. Once that realization hit, the tech bubble blew up and millions of people lost money.
Start by researching stocks, real estate, and other alternative investment opportunities such as comics or cars based on long-term growth and not just earning quick cash. Real estate has inherent value, but there are stocks and commodities that will always be around as well.
But if you must invest in a new trend, one that has all the earmarks of bursting, then do so only with the money you are willing to throw away in the street.
A Way Out: However, even the safest of investing strategies needs a way out in case the worst should occur. More likely, at some point you will want to pull the investment and put the assets into something else that offers greater promise.
Be sure that every investment has an exit strategy that you can employ with relative ease. Most of the time, you will want to leave on your own time to invest in other opportunities. But it also helps when it appears that your investment may crash in the near future and you want to save something.
Think Long Term Rules of Wealth
In other words, let the assets have a chance to grow and reach their full potential. When you invest in moderately risky, but long-term stocks for example, the market will have its ups and downs. But in the long run it will grow. And that is the goal is to have a far bigger amount of money years from now compared to where you are today.
While it is possible to get rich quick, it should never be the goal of anyone seeking to build wealth. If it happens through your safer investments, great, but you are one of the lucky few. Instead, you should be thinking five, ten, twenty, and thirty years from now or more.
By following the three rules of wealth creation, you can right the ship and get on course towards building a solid financial future.
Rules of Wealth ©Sophisticated Investor 2021
Rules of Wealth