Do you know how to build financial wealth?
Most people don’t and it took me a while to learn how to do it properly.
So in this post I will share with you my 10 recommendations for wealth building at any age.
Although wealth isn’t all about money I have focused on building financial wealth in this post. There are plenty of other things that you can do to make your life really wealthy that do not include money and I will cover these in a later post.
I strongly recommend that you follow the 10 wealth building habits below and avoid the mistakes that I made. You will see that all of these habits are about using common sense, thinking long term and having discipline.
10 Ways to Build Financial Wealth at Any Age
1 – Make your Money Work for you
You need to make a smart decision here. The return on investment from most conventional savings accounts is pretty low in the US at the moment, less than 1% at the time of writing this post.
There is a high yield checking account paying 4%+ but you need to check the conditions surrounding this. Often you have to leave the money in for a fixed period or there will be other fees.
As you are in the wealth building arena or want to be, you are likely to get a higher return on your money through other means. So you need to think carefully about where you invest your money.
Here is what I do. I save around 10% of my annual income and put this into a high interest savings account. I use the other money to re-invest into other projects, such as real estate, stocks, crypto, angel investing, crowd funding, my businesses etc.
Even though interest rates are very low at the moment for savings accounts, I believe that it is important to make saving a habit if you want to be wealthy. A savings account is guaranteed to make your money work – other projects are more risky.
2 – Pay Yourself First
I made a big mistake with this when I first started out in business. I only paid myself when there was enough money to do so. How did I survive? I lived on credit cards and ended up paying high rates of interest on my day to day living. This was not very smart.
Fortunately, I don’t need to worry about this now but my recommendation to you is always pay yourself first. If things are not going so well then this motivates you to generate more revenue.
Calculate the exact amount that you need for all of your living expenses and on the first day of the month send that amount to your bank account.
Another good rule to follow is to save at least 10% of what you earn. I recommend that you create a “wealth account” and send the money there. Make sure that your money will grow and resist the temptation to spend it.
3 – The Rule of 72
This was something that I learned fairly recently. If you have not heard of the “rule of 72” I will explain. It is all about measuring opportunity cost when it comes to making your money work for you.
It is a mathematical equation that will tell you how often saved money will double over a time period for a certain rate of interest. I will explain this with an example:
Let’s say the interest rate you are earning on your investment is currently 3%
So divide 72 by 3 and you get 24 years.
What if you could move your money to an account or other investment that had an interest rate of 4%?
72 divided by 4 gives you 18 years.
What about 5% interest?
72 divided by 5 is 14.4 years.
What this does is show you quickly the opportunity cost of keeping your money in an investment that pays 3% compared to 4% for example. It will take 6 years longer to double your money at 3% interest than it will at 4%. If you could find an investment that pays 5% you will shave off nearly 10 years!
4 – Earn More than you Spend
Yes I know this is obvious but so many people fail to do this. I know some investors that make a great deal of money with their real estate projects but they are in debt because they spend more than they earn. They have lavish houses and brand new luxury cars but they don’t have a penny to their name.
I am not suggesting here that you never spend any money – far from it. But you need to get into the discipline of spending within your means no matter how much you earn. One of the things that really helped me was creating a budget. As part of this I reviewed all of my spending and cut out a lot of unnecessary things. Create a budget and stick to it.
5 – Discipline
When I first started out I had no discipline when it came to money. Whatever I earned I spent pretty quickly and then started to hammer my credit cards. I soon found myself in a debt spiral that I desperately wanted to get out of.
If you are undisciplined at the moment then you need to work on this. Here is a harsh reality – you will NEVER be wealthy if you spend all of the money that you earn! Start by reviewing all of your expenditure and creating a simple budget you can follow each month using a simple spreadsheet.
It will take time to develop money discipline. If you have a partner then explain to them that you need to go down this path. Show them how you are spending your money and how much you could earn if you saved more and got rid of any debt.
6 – Use Leverage
What does leverage mean? Well a good definition is to get greater results with less effort. Using other people’s money (OPM) or time is very powerful, and will help you build financial wealth faster than anything else.
A good example of this is a mortgage on a rental property, you are leveraging the bank’s money to build your wealth.
I do everything I can to leverage other people’s money, time, experience, connections in my business and I recommend that you do the same.
In the US there are government backed savings plans that you could be eligible for. With these accounts you do not have to pay interest on the money that you earn. There are also some accounts that pay bonuses. See if you can leverage these.
Are you putting money aside for your pension? It doesn’t matter how young you are you should start making pension contributions now. There are many plans available that have a lot of benefits such as tax and interest earned. These are other forms of simple leverage you can use.
7 – Don’t Lose Money
Have you ever lost money? I am not talking about losing five bucks in the street here. I am talking about losing big money. Some investments look very tempting and I lost money by investing in some properties in an area that I was not familiar with. This was very painful and I think about how much I could have earned on that money if I had it back.
Here’s an easy way to lose money – buy a new car! A lot of business people crave an expensive Mercedes or BMW and I understand this. I will buy myself a Ferrari one day but I will only do this when I am wealthy enough to easily take the hit.
If you spend $50,000 on a new Mercedes I guarantee that after a year it will be worth at least $10,000 less and probably more. Not only that, the service costs for these kinds of cars are ridiculously expensive. If you want a new car then consider leasing it where all of your servicing is included.
It is better to buy a used car that is one or two years old than a new one. Yes it will still depreciate but not as much as a new one will. This is not just about cars. I urge you to do everything that you can to stop losing large amounts of money in any situation.
8 – Be Investment Savvy
You need to develop a good eye for detail. If you are considering a new savings account, investing in a new property or any other form of investment then know what you are getting in to.
Real Estate investment is a risky business but I do it because the rewards are there. Make sure that you do your homework and don’t make costly investment mistakes. You can never do too much research when it comes to any new investment.
No matter what form of investment you are considering, make sure you fully understand the process. How does the business model work? What are the terms of the investment? Who is behind it? What are the risks and rewards? Just get investment savvy.
9 – Treat Building Financial Wealth like a Business
The best way to make your money grow is to remove the emotion from it. In my real estate investing business I use money as a tool to invest in new properties and build a successful portfolio. I know what funds I have available and I can only make investments within my limits.
So I am recommending that you use the same approach with your personal wealth building. Know your limits and live within your means. Review your personal finances on a regular basis. Don’t spend your money in a casual way.
10 – Be Aware of Fees
Whenever you make financial transactions there are usually fees. When you take out a new mortgage or a loan there are fees. For a lot of pension plans there are fees for managing your account. These companies all need to make money and they will usually include fees to generate more income.
So if you are comparing a number of different options for wealth building make sure that you are fully aware of the fees involved. Usually fees work on a percentage basis and 5% might not sound a lot but when you are investing large sums this can be a significant amount.
My Final Thoughts on Building Financial Wealth at any Age
If you take nothing else away from this post then I urge you to change your current mindset from thinking that you need to work to earn money. You need to change this to making your money work for you. This is the principle that I have used over the years to build my financial wealth.
To build financial wealth at any age you need a high level of self-discipline. This can be difficult at first but it is essential for your success. If you find yourself struggling with self-discipline then tell yourself “the pain of discipline is much better than the pain of regret in later life”.
I would love to hear your thoughts or experiences now. Are you currently building your financial wealth, what challenges or successes are you experiencing. Please add them to the comments section below.
Thank you very much and have a great day.