Building wealth is a concept that many consumers are very interested in but only few really invest the time to understand the concept and make it happen. It is not something that will happen on its own and it is not something that will happen quickly in most cases.
There are exceptions such as winning the lottery or creating the next Internet fad and selling it for a load of cash but those are more flukes and they cannot be considered to be wealth that is built; those are examples of windfalls. A person needs to learn how to build long term wealth just as they would learn any other important skill in their life.
Create Goals
It may sound oversimplified but it is a critical first step. You need to have a goal in mind. This not only sets the bar and allows you to track your progress towards reaching the goal but it also can be used as a motivational tool. Wealth is a rather abstract concept and each person will have his or her own idea of what dollar amount would allow them to feel wealthy. In addition, there are other indicators of wealth for some people, it might not be just about amassing a certain amount of money. Some people view wealth as an ability to enjoy free time and leisure time at will. They want to be able to travel, relax or do whatever they want whenever they want. It is about not being committed to a certain work schedule to earn money. Setting goals that will define when you have reached what you consider to be wealthy allows you to reach your goal and then begin enjoying the lifestyle that you have defined as being wealthy.
Learn the Difference Between Wants and Needs
You will find that many average people are able to attain their version of wealth once they master the art of knowing a want from a need. We are a society who is mesmerized with shiny and attractive items that we see in magazines, on television, and in advertising. The items are marketed to us as if they are certain to make our daily lives better, easier or more enjoyable. We are told that we simply can’t live without this miraculous item. This is all the power of persuasion and the backbone for a successful marketing campaign. But most of the time it is far from the truth. Learning to select the items that you really need such as shelter, food, and transportation and ignore the extra bling items can be a challenge. You also need to be able to evaluate the level of the needs. You need a car to get to work but do you need a car that can go 120 miles per hour and has leather seats and an onboard computer system that rivals the entertainment centers in any homes? The answer is no, so select the item that meets your basic need and then move on. Fulfilling basic needs and then selectively fulfilling wants will allow you to set money aside to meet your financial goals of the future and will also facilitate you following the next golden rule.
Live Within Your Means
Living within your means is simply creating a budget and sticking to that budget, no matter what. This is where you consciously decide to skip some of your wants in order to stay on budget. And a part of that budget is also the allotted money that you are saving or investing to attain your status of wealthy. Any surplus of money that you have each month is the capital that will fund your future.
Start Early
Everyone talks about residual income and how that is what you need to consider yourself wealthy. It is money that keeps rolling in and you are not even working for it. In most cases, this comes from rental income or from ownership in a stock or business that pays you dividends on a regular basis. But there is an even easier way to create residual income; that is by getting interest on your invested or saved money. Time is a wonderful thing when you think about compounded interest. The earlier you begin saving the longer your money grows and all you have to do it sit back and watch it. Soon you are getting interest on the interest that you previously earned. It’s not a huge amount, normally a few percent or maybe up to 6%-7% if you are invested well but that will add up over time and you will also continue to contribute more to the account which will earn interest. So if you have the opportunity to start a 401k account at your first job, take advantage of it. You might only save a few percent of your income and if you are lucky your employer might throw in another few percent in matching funds but over time that 5% of your income will accrue interest. So in 45 years you will have a much more sizable amount. Let time work in your favor and start saving and investing early.
Be Prepared
One of the most responsible things that you can do is create an emergency account. There are things that just happen and you need to be able to pay for them without using a loan or credit card that charges a high-interest rate. Having an account that is just sitting, and earning you interest, when it is not in use is very valuable. You might need to pay for a car repair or the deductible on your insurance or you might get injured or sick and miss a few weeks of work. But having an emergency account lets you pay those bills without worrying and without paying interest. Then when you are back on your feet you begin to repay yourself. Learning how to build long term wealth is not difficult but it does require commitment and a desire to work toward the goals that you have set.