A Guide to Wealth
The Rules of Wealth
Below are some rules for becoming wealthy, they’re not in any order, some you may find easier to achieve first, or you may even be able to achieve all of them simultaneously.
Save!
The first rule is to save at least 10% of your income, the more, the better. Even a small amount builds up fast as long as you can resist the temptations to spend it.
This can of course be hard as you may have different sources of debt or expenses to pay, try to save as much as you can while paying off your debt consistently. Being good at paying off debt will improve your credit score, allowing you to save more in the future when applying for a mortgage. This is because having a good credit score can lower your interest rates.
Own the roof you live under
Owning the roof you live under is a great way to have a home and save and invest your money. An important warning though, remember the first rule. I encourage you only to buy a home, if all of the expenses in owning it amount to 10% less than you would to rent that same living space. And just like with saving, the more you can increase this amount, the better off you’ll be.
This gives you better cash flow than when compared to renting, allowing you to save more; and also gives you wiggle room should you ever need to rent it out or interest rates rise sharply.
Have your money make you money
As mentioned in the first article, wealth is the ability to have your assets give you income purely by owning them. To achieve this, you need have your money making you money, which makes you money…which makes you even more money.
Or, every $10 you have, should make you $5, which makes you $2, etc.
One easy way to achieve this is to buy a dividend stock, and then setup an Direct Reinvestment Plan (DRIP). This means that each time you get money from the stock as a dividend, the money received will buy more of the same stock, usually at a discount. This also works for Exchange Traded Funds.
The goal here is to have that money you have worked so hard to save up, to make you even more money.
This principle can carry beyond just money, but things you have already spent money on. I recently bought a drone, and plan to make the money that I spent on it back by selling the footage that I record with it. If you own a car, you could do food delivery or ride sharing as a side hustle.
Learn to value & appraise
A good deal comes from the buying of an asset, not in the selling… - Robert Kiyosaki
This is important to remember, if prices are rising rapidly for any asset, the only way you’ll be able to sell it for more is if someone is willing to buy it from you for more than you did. In every bubble it eventually reaches a price that no one is wanting to buy but everyone wishes to sell, when this happens, you’ll likely be selling for a loss.
Therefore it is crucial you learn how to value assets for yourself and be wary of trends.
Different assets have different forms of valuing, for stocks there are balance sheets, ultimately, this is a skill and preference that you must develop yourself.
I advise you start by observing and visualizing, such as a practice investment account or by keeping an eye on your local real estate market. From there, start to slowly inject your capital, observe your emotions and keep them in check.
“Never test the depth of a river with both feet” – Warren Buffet
Protect your money from laws
This rule requires research for the nation that you live in, but the goal is make as much money and keep as much of that money for yourself as possible. This can be achieved by learning the financial laws of the nation you live in as well as any fees associated from storing or investing your money.
Most countries provide residents with savings and investments accounts that are able to grow tax free. In the UK there is the Individual Savings Account (ISA), in Canada there is the Tax Free Savings Account (TFSA), and in the USA there is the Roth IRA. Again, it’s critical to do your research here about the limitations, some national tax agencies may tax you on day trading as these accounts are intended for saving.
It’s important to become familiar with the laws of your nation to understand the advantages that are unique to that nation. For example, some countries allow you to receive money from bonds tax free, others may reduce taxes the longer you hold an investment, some give a different tax rate for dividends of the home nation vs foreign dividends.
Paying taxes is a patriotic act, the aim here is to only pay as much as you should, not more than you should and you can achieve this by being knowledgeable in where and how to grow your money. No one should be seen as a villain for using a Roth IRA or an ISA.
Now remember, I’m a stranger on the internet, I fully advise that you go through your finances with a financial advisor to be certain of things yourself. I am not a financial professional.
Thank you for reading, would you like to read more?
Next post, “How to Save, Well!”, coming out Friday the 18th.
Over the following weeks I will be continuing to share what I have learned on wealth; for now please explore my top four books for growing wealth.
- The Richest Man in Babylon
- Rich Dad, Poor Dad
- The Snowball
- Principles for Success
