What is the best way to build Wealth. We are not saying what is the easiest way to build wealth, but the 7 Strategies of the wealthy Highlights key common principles followed by those that have taken control of their finances and are building a compelling and secure wealthy future for themselves.
This article follows from the one written on the ‘Rules of the Wealthy’ and gives a little more depth to the frameworks and common activities that the wealthy follow. I would also encourage you to study and follow wealth examples that you find. Even small changes and positive new practices that you find and implement, once they become a habit, will set you for life on your path to becoming Wealthy.
There are 7 key strategies the Wealthy follow
1. The Wealthy know where they are in respect of their Finances.
So should you. The Wealthy know where they are in respect of their finances, their wealth, their assets. It is important for you, also to know your own personal situation as without this knowledge you can not move forward in your goal of becoming wealthy. Wealthy people regularly engage in a process whereby they analyse their current financial status. They carry out what is called a Personal Financial Audit. This is very similar to how an accountant would look at the performance of a Business.
Therefore, your first task is to carry out your own personal wealth audit. The things you need to consider for your analysis are out of scope for this article, so head over to the article on ‘Carrying out a Personal Wealth Audit’ (Link Here) to see and follow the steps. Don’t neglect this as without it you will not have a base to move forward from.
2. The Wealthy Spend Less than they Earn
Hopefully you carried out the task above in understanding where you are in respect of your current financial situation. If you were truly honest, I would probably say it was an uncomfortable process and experience. However, it is done and now, no matter where you came out on your own analysis you can move forward and begin to put down some solid foundations.
Remember, you cannot build a skyscraper on a bed of sand.
When you look at your balance sheet from your audit, are you frittering money away, are you putting too much on Credit or Store cards? In other words, are you spending money you don’t have?
Where credit cards are concerned don’t just factor in the cost of the purchase, but add to it the finance charge. This is particularly true if you are just adding to a balance and not paying the total off each month. As a rough guide, just add 25% or another quarter of the price of the item to its cost. For example, the £99/$99 purchase may really be £124/$124 or more depending on your card interest rates.
3. The Wealthy Have an Investment Plan
If you act against any overspend activities from point 2 you hopefully should have some income left for Investment. From the very beginning you should look at least setting up a regular savings account. Once you start investing and build a pot, other options begin to open doors for you in so much as you can access higher interest accounts, put money into ISA’s (Tax free interest earning accounts in the UK)
Your aim, like the Wealthy, is to build a bit of capital and then look to invest it wisely. The same holds true if you come into some money. Say a windfall, tax rebate, Inheritance, Gift, whatever, it doesn’t matter. Don’t blow it on a Holiday, or Car. You need to follow the wealthy and use this extra money to boost a plan or invest further. that is keep Building Wealth.
4. The Wealthy Learn to let go when Investing
There is an adage that says…’don’t try to catch a falling Knife’ The Wealthy live by this (or something similar) when it comes to their investments.
For Example:
Holding on to a Stock or a Share as it keeps falling? Why? Get Out, you can always re invest later
Reading un-favourable news about an investment or opportunity
Not feeling right about a Plan. Our sixth sense is a great thing for alerting us.
Reached a profit Target. The Wealthy have a get out on profits made.
You want to cash out to re-invest the funds in something else (note: I said re-Invest, not spend!)
5. The Wealthy make their Assets work for them
If you carried out your personal audit you also might have some assets on your balance sheet. The Wealthy will look to make any assets work for them, and not have them sitting idle. From your list, be Creative. What can you use the asset for in the purpose of wealth creation? As an example of thinking outside the box, there are people who live near major sporting stadiums who have a driveway for parking. These people will ‘let Out’ space on their driveway, on match day, for supporters wishing to park near the venue.
Do you have an empty garage you could let
Old period furniture that can be rented to a Film or TV production company
Vintage car, same as above or perhaps wedding/event use
Don’t limit your thinking here.
6. The Wealthy Diversify
The Wealthy do not put all their eggs in one basket. Neither should you. Do you have all your money in one Savings Account? What if that Bank or Society holding your funds was to go Bust? It has happened. In the UK we had the Northern Rock Collapse with Investors queuing in the street to withdraw cash. Had the Government not propped up the Bank Savers could have lost all their money. (more here)
You should look to minimise any potential total loss risk by diversifying your Wealth and funds into different earning facets.
7. The Wealthy Seek Financial Advice from Investment Professionals, But…
They will still take a view based on other pieces of information and research as well. Basically, do your full homework on any investment opportunity, use your head and don’t go on whim or impulse because someone is telling you to. You have worked hard for your money.
On that note, NEVER take financial advice from someone who is not expert in Financial matters, does not have a track record in wealth, and is not wealthy. In other words, don’t ask an Accountant to electrically re wire your house, Don’t ask your mate in the bar on Stock options. You get where I am coming from here.
I hope you enjoy this series of articles. Let me know your thoughts in the comments section below. Also, in your own research on the wealthy, what other tips and practices have you found? Are there any far different to the above? Good luck on your path to wealth, oh, and I know its uncomfortable, but please do the personal wealth audit mentioned at the start of the article…It will ultimately help you.
Best Regards
Del
Disclaimer bit: When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in. Tax treatment depends on your individual circumstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice.