What follows is a rather long list of ‘common sense’ wealth building tips and strategies for you to consider when you are developing your own wealth building plan.
It's next to impossible to tackle everything all at once. So, we will be adding to our list regularly. We are also keen to hear your views on how to build wealth. Please leave your comments at our feedback form, below.
Start with our wealth building tips that apply most to you and are relevant to your situation. Not all suggestions fit all people.
Consider the following simple but practical wealth building tips on your way to creating your own wealth building plan:
1.√ Get Started. Make a Wealth Building Plan
If you don’t have one, do you know what you are doing? These wealth building tips will assist you in setting realistic goals, sort-out your short-, mid-and long-term priorities, and show you what you need to do and when. It should keep you ‘on course’ irrespective what life throws at you or indeed any major stock market fluctuations.
2.√ Set your sight on your long term goals:
Keep your goals simple. Ask yourself some frank questions, such as:
- where would you like to be with your finances in ten
years from now, or maybe even twenty?
- how much money do you expect to be earning in 5,
10 or even 20 years?
It's almost a given that everybody will be earning more in their 40ties than in their 20ties. But how much more? Three times more, four times more, Five? I suggest you consider a conservative three to four times more.
In order to have a sizeable 'permanent' savings pot in 5, 10 or 20 years how much money should you be saving from now on? Consider how much you expect your savings to increase each year. Five per cent, 7.5 per cent, 10 percent?
Don't expect a huge return if you intend to keep all your permanent savings in a savings account - perhaps just a few per cent interest on average, per year? In fact, after taking inflation into account, currently, all savings accounts are paying a negative rate of interest.
When you are considering alternatives to low interest rates, in order to beat low interest rates as well as inflation, you need to be prepared to accept some risk. Such as: investing some of your 'permanent' savings into solid dividend paying shares with increasing dividends. At least, in comparison to interest rates, dividend payouts are again on the rise.
Once you have answered these questions, write down your mid term and long term goals, starting with:
"In five years time, I'd like to have £..... in permanent savings, and be earning £......... per year. To achieve this, I will begin to work towards short-term goals every day, and will also be starting to save £.... per month".
Do the same for your 10 and 20 years goals.
Then break down your short term goals in increments of daily, weekly, monthly and yearly goals.
Once you have set your goals, stay focused on them and don't worry (too much) what's happening around you.
While our wealth building tips and strategies will not make you rich overnight, I sure hope that they will give you some guidance towards building wealth and financial freedom.
Don't hesitate to comment on any of our tips using our feedback form below.
3.√ What is the source of your income?
Without a regular income most of what follows is unlikely to apply to you. So, the very first question you should ask yourself is:
how secure is my income?
Before you can even begin to consider saving or investing long-term, you need to have one or more secure long-term sources of income. Your income source(s) should be at least sufficient enough to cover your daily, monthly and annual outgoings.
You need a personal budget!
Create a simple budget. Basically you list all your sources of income. Than subtract all your outgoings and expenses from your income total. Then, I suggest, you do this exercise again, but then consider and remove items of spending which are not necessary. What’s left you may want to consider depositing in your long-term –that's your permanent- savings account.
How to create a personal budget? We found this easy to set-up program, created by a qualified accountant, very useful when setting up a personal budget. Here's a summary of what to expect:
- Personal Budgeting - What you need to know
- Financial Basics - Being a good money manager
- How to make a personal budget
- Budgeting for Teenagers
- Managing credit card debt
- Dealing with credit agencies
- What happens when my budget is not working, and
- Eleven of the easiest money saving tips you will ever find.
You will discover how to get rid of credit card debt, learn how to improve your budgeting skills and also be able to teach your kids the value of money using a few simple steps.
4.√ Pay-off your credit card on time!
Before even considering building wealth, you must protect what you have. No matter how much money you earn, if you remain in (long-term) debt your attempts to sustainable wealth building will be in vain. Debt is one of the main hurdles that keep people poor and from accumulating any wealth.
If you use a credit card, always clear your credit card balances every month on time. The high interest rates you’re paying on outstanding credit card balances will completely erase any gains made from almost all investments.
If things are really getting out of hand, spending-wise, try for a few weeks to pay all your spending using only earned cash. Yes, only use the cash you have earned, not saved! You will soon ran out of money and realise that you need to adjust your spending patterns. This strategy will help you to live within your means
And don't forget about the mortgage interest you'll be paying over the years when considering a mortgage or any other type of loan taken out.
5.√ Accelerate your mortgage loan repayment.
Anyone paying taxes who also has cash savings and a mortgage should look into a so-called 'offset mortgage'.
Unless all your cash savings are in a Cash-only ISA, you will be paying tax on interest earned from your savings.
NOTE: you do not pay any tax on any interest 'saved' by offsetting savings against your mortgage.
Switching to an offset mortgage may save you a substantial amount in interest as well as shorten the term of your mortgage loan with a number of years.
6.√ Do you have health and disability insurance?
Are you covered for any major medical emergency?
Disability and critical illness insurance covers you in the event of an accident or sickness that prevents you from working.
Make sure to check that you're not already covered by a policy at work.
Don’t invest a penny before you have sorted out health and critical illness insurance.
Always make sure to protect your downside, so that no single setback can demolish your (future) savings and investment gains.
7.√ And what about life insurance?
Life insurance is a good idea if you have dependents. In just about all cases a renewable 10- or 20-year term policy should do the job of providing the insurance coverage you need for the period you need it.
Term insurance is far cheaper than whole life and you can easily compare prices by visiting one of the comparison websites.
8.√ Start saving regularly
If you have followed up on our wealth building tips sofar, you'll have:
- reined in your overspending
- balanced your outgoings and expenses
- insured yourself against the worst
- thinking of started to save in a Cash ISA
Once you have an income that’s enough to cover your ‘basics’ you need to start developing a proactive and regular long-term savings plan.
Saving becomes easy if you remove the necessity for willpower and 'pay yourself first'. In your wealth building plan under your savings goals, you should already have decided how much you can save in a year and therefore you know the monthly amount.
Open a separate savings account such as a high interest cash ISA, and direct the appropriate amount of money into it, via a standing order. Let the transfer take place the next day your salary is paid into your current account. The money you’re saving is ‘gone’ before you ever see it.
By doing it like this, you are taking the stress out of saving. You know you've already put away your savings 'quota', so, if you wish, you can spend every penny of what's left over with a clear conscience. And because ‘you never actually see’ the money you're saving, going without it doesn't feel like major deprivation.
9.√ Diversify into different asset classes, other than cash
Once you've insured yourself against the worst and have started to save regularly, diminish your risk further by diversifying into different asset classes such as shares.
Consider subdividing your money among a varied selection of assets to ensure that no one mistake can wipe you out.
Diversification only works, though, if the assets you own are truly different. As a keen foodie, holding shares in half a dozen UK-based restaurant companies is not much better than putting all your money into one, because all restaurant companies are affected by many of the same trends.
10.√ Consider investing in shares or funds
Once you have decided to invest in shares, you should always aim to hold at least half a dozen different companies operating in different industries, and preferably also in different regions. Otherwise your portfolio may be too concentrated.
Subdivide your portfolio. Never own more than 5 or 10 per cent of your portfolio in the shares of a single company, so that even if one goes bankrupt overnight, and you’re unable to sell at any cost, the damage to your share portfolio is never more than 5 or 10 per cent.
If you want instant diversification, consider low-cost actively managed or index funds or shares ETF’s that instantly diversify you among hundreds of companies.
When investing in shares always consider 'sheltering' them against tax in a stocks and shares ISA.
Why not share your wealth building tips with us?