Learning how to build wealth is so important if you want to win when it comes to your finances.
We can talk about saving money and getting out of debt all day long but your long term goal should be to build wealth.
Building wealth is something that is not spoken about enough in my opinion.
Learning how to build wealth might sound difficult at first but I can assure you that it is not.
Building wealth simply consists of, making money, saving money and investing money. It’s as simple as that.
For every stage, you must have a plan and a way of getting there otherwise you are just leaving everything to chance.
The younger you are when you start to build wealth the better off you will be for it in the future.
Let’s take a look at each of the steps to get you on the building wealth ladder.
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1. Making money
Making money is a part of building wealth but it is not the whole picture.
There are many ways that you can make money and some ways are more conventional than others.
The more opened minded you can be about making money the more you can potentially make.
Some people will happily have a side hustle whereas others will prefer to work their way up to a position within a job that has more earning potential.
There are two main ways that you can make money, earned and passive income.
1. Earned income
This is money that you would make by going to a job every day.
When it comes to earned income there is usually a ceiling as to how much you can earn so you must always bear that in mind if that is the only route that you want to take.
2. Passive income
This is money that you get without having to do much more work in order to get it. It can be income from property rental, investments or even a business where you may be a silent partner.
In an ideal world, we would all love for our income to be passive because it means that we can get returns from our money without having to physically do anything much.
This is the best type of money.
Earned income is usually the type of income that most people focus on.
Whilst there is nothing wrong with earned income, especially if you are getting lots of it. It can be very time consuming, highly demanding and will only take you so far.
Whereas passive income is the complete opposite.
If you really want to learn the success behind building wealth then look more into passive income ideas and run with those.
If you can find a way to create multiple streams of passive income then you will definitely be on the right path to wealth creation.
Most people that have become millionaires will tell you that the secret to their wealth has been to have multiple streams of income.
While most people focus on creating wealth from the difference between income and expenses, you will be doing something very different.
Begin to do some research into the things that you love to do and find a way to make that into passive income.
You might be really interested in investing in property. If that’s the case then learn all that you can about property investment and get your first property purchased.
Continue to build on that until you have built up a property investment portfolio.
2. Save money
Another great strategy for building wealth is to learn to live below your means.
How many times do we get a pay rise at work only to increase our lifestyle too?
It happens way too much.
The next time you get a raise at work think about specific things that you want to do with that money. How can you perhaps double it?
Find ways to make that money work for you rather than just spending on something that you won’t even remember buying in a few months time.
Living below your means does not necessarily mean that you have to live on the poverty line, it just means that you don’t spend any more money than you need to.
Think about ways in which you can also live more frugally. Take the time to look for deals, buy when there are special offers going.
Train yourself to become more money conscious. You’ll be surprised at the savings that you can make just by being more aware of your spending habits.
The best way to see how much money you can save is to make sure that you have a working budget.
This will give you insight into what your income and expenses look like each month.
Once you know this you will be able to easily see areas where you can perhaps make more savings and cut back on areas that you feel you are spending too much in.
Investing is the one area that a lot of people fail to make provision for.
The truth is that investing can potentially skyrocket your money if you do it the right way.
Before you start to invest you need to be able to understand your level of risk.
What I mean by that is how much risk you feel comfortable enough to take without it becoming a problem for you.
There is a saying that you should never invest anything that you can’t afford to lose.
Whilst there is some element of truth in this there are actually measures that you can put into place to safeguard your investment.
The more “safe” you want your money to be the fewer returns you can expect to receive.
If you are new to investing then I wouldn’t advise that you start with anything high risk unless you FULLY understand what you are doing.
There are many different types of investments that you can go into.
The main ones being stocks and shares, mutual funds, cash investments and, property.
1. Stocks and shares
When you purchase stocks you are essentially buying into the success of a company’s profit.
Stocks are often considered medium to high-risk investment as shares can go up and down depending on how the company performs.
The best advice I can give you here if you want to go down the stocks and shares route is to make sure you understand the stock that you are purchasing before you purchase it.
If you love gadgets and you understand how that industry works then that would probably be a good place to start.
Don’t go jumping into aviation if you haven’t got the foggiest clue about it because you will find it hard to come up with a good strategy to invest your money this way.
2. Mutual funds
A mutual fund is where you put your money together with other investors in order to invest.
The investments are then managed by an experienced investment manager who will usually take care of the account on a full-time basis.
The knowledge of the investment manager will allow them to buy and sell at the appropriate time. You would personally not need to have so much personal knowledge in this instance.
There are great advantages to mutual funds because they allow you to be able to easily diversify your portfolio, therefore, reducing the risk of having all your eggs in one basket.
3. Cash investments
A cash investment is a fairly low level investing as it only surrounds opening a savings account at your bank. This can be regular savings or high-interest savings accounts.
This is by far the safest way to start investing but is also the option that will give you the least return for your money.
With a savings account, your initial investment money is pretty much guaranteed to return to you. You may even know the exact interest that you will receive from it.
Personally speaking, property is my most favored way to invest money. As long as you have the start-up capital you can pretty much get to it.
It requires that you do the research into finding the ideal property to purchase with a view to either selling or renting it out.
In the past, I have always used property with a view to renting out but honestly, if I were to go back now I personally would focus more on property flipping.
Real estate has always been of interest to me and its a market that I understand and I can be passionate enough to keep pursuing and gain more education in.
Final thoughts on how to build wealth
Learning how to build wealth is one of the best things that you can do.
If you hate the idea of living paycheck to paycheck then you should seriously consider a wealth building portfolio.
Unfortunately, many people that I know don’t think of money in this way and tend to focus on ways to make it to the end of the month without thinking of their future needs.
My advice to you is to start slowly in one particular area that you at least have a basic level of understanding in when it comes to investing and build on that knowledge.
You’ll be surprised how much you can learn in a short space of time.
The things you can do today to start building wealth are to find simple ways to make more money and save money.
Just remember it will take patience and discipline to get there but you can make it.