Benjamin Franklin, one of America’s greatest minds, wrote what can be best described as America’s first book on personal finance: “The Way to Wealth.” Many argue that it is the best book ever written on personal finance, and I agree that it contains priceless wisdom on the subject. One of my favorite quotes is, “If you would know the value of money, go and try to borrow some.” Therefore, it is with a great deal of modesty that I offer you six more tips on building wealth.
1 Get Financially Literate
Not every wealthy individual has an MBA. In fact, many of the wealthiest individuals do not even have a college degree. Have you ever heard of Bill Gates? Knowledge is power, and it is important to become knowledgeable with regards to money and finance. You do not have to attend a college or university to acquire this knowledge. Read everything you can get your hands on like books, magazines, and newsletters. Pick the brain of every successful person you know. Put life’s lessons to work for you. Things you have already experienced can be useful in making smart investment and business decisions.
2 Grow Your Money
Save for investing. If you save one hundred dollars per month for a year, you will have $1200. If you invest $100 per month, you could end up with $1300 or more at the end of twelve months. That’s an important difference. Think of growing your money as an obligation. Contribute weekly, biweekly, or monthly as if it were a debt. After all, it is no less important to pay yourself than your car payment.
3 Learn to Accept Risk
The cliché is “no pain, no gain” and if you are going to become wealthy, you must learn to take risks and live with the occasional pain of losing. Steve Jobs, Apple’s founder, lost a quarter billion dollars in one year. When opportunity knocks, you cannot be found cowering behind the door. Many of the world’s wealthiest individuals are entrepreneurs. Entrepreneurs routinely take risks. Of course, you have to understand the risk versus the reward. Each opportunity must be analyzed and the risks and rewards carefully considered. Most of us can rely on our life experiences for direction and guidance. We have all learned there is no free lunch (I hope).
4 Don’t Spend More than You Earn
I know this seems painfully obvious, but as a practical matter, if you have debt, you have it because you are spending more than you earn. Take a moment and get your head around this concept. You have an auto loan because you did not have the money to purchase it outright. The same is true for your mortgage, your college debt, and so forth. I am not suggesting that you forego a home, a car, or an education, but I hope your takeaway is that debt is often a red flag, a signal that you are not living within your means.
5 If You Don’t Have it You Can’t Spend It
You can avoid the temptation of overspending by automating your savings and investment. If you have a 401k plan at work, contribute, at minimum, the amount your employer will match. You can also earmark money taken from your paycheck or checking account for deposit into a savings account. If the money is not in your hand, you are less likely to spend it.
6 Diversify Your Income
It is a common perception to view your earnings as fixed—an amount that needs to be allocated to various obligations like housing, utilities and other recurring obligations. This is a mistake. Alter your paradigm and think of ways to increase your income. If “fixed” is the way you view your income, that is the way it will be. You know that it is imprudent to put all your money into a single investment. All the best financial advisors encourage diversification of investment. Diversifying your income stream is equally important. Consider how you spend your leisure time. Is it possible to use that time to pursue a part-time job, create a passive income, or start a small business? Diversifying your income will help you build your wealth and in today’s uncertain economy is a big plus for your financial peace of mind.
I hope you will take the time to share your ideas on building wealth. Please take a moment to comment. You have some ideas, don’t you?