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5 simple rules to building wealth
By James Yeo
The journey to creating a huge fortune takes an incredible amount of work and time.
That said, there are several simple rules and systems we can follow which, if adopted into our daily routine and maintained over a period of time, can facilitate a steady flow of income that one day could turn into something meaningful.
1) The magic of compound interest
You might say saving money is the simplest way to wealth because “a penny saved is a penny earned”. However, saving money can only bring you so far as you are limited to the monthly salary you have.
On the other hand, you can utilise the power of compound interest in wealth creation.
Try putting a lump sum into an investment vehicle that offers a steady rate of return. Over time, compound interest will work its magic and leave you with a much bigger pot than you started with.
Here’s a simple example:
Say you put away $10,000 today in a 5% interest account. At the end of Year 1, you will have $10,000, plus $500 interest. At the end of Year 2, however, you will receive interest on your $10,000 and your $500 – an additional $25 of interest.
In 40 years time, your $10,000 will be worth a whopping $70,400 – a 7x gain on the original sum.
2) Avoid debt
This is a no-brainer. Debt is debilitating and difficult to control once it spirals downwards.
When we are talking about debt, we are referring to those who tend to live beyond their means like buying a branded bag when living paycheque to paycheque.
Ultimately, there is no chance of building wealth as the exorbitant interest rate on your debt will wipe out any interest gains you earn in the first place.
3) If you’re going to invest, invest in yourself first.
I believe you have heard of this quote before. An investment in knowledge pays the best interest.
Thus, when you pick up valuable skills, you are able to create value for others and ultimately you will be able to earn more money.
The opportunity to upsize your earning potential is probably the fastest route to building your wealth.
4) If not yourself, invest in relationships
Here is a quote from Jim Rohn, motivational speaker and self-help guru:
“You are the sum of the five people you spend most time with.”
Have you ever wondered why the rich get richer? This is because they often hang around with people of the same ‘category’ and opened many more opportunities for them which are closed to others.
Thus, make sure to take the time to grow your personal relationships and develop a strong network. You never know when you get a rare opportunity just because you were there at the right moment in life.
5) Develop multiple sources of income
In today’s economy, there are multiple ways to make money from freelancing to consulting or even doing online surveys. In fact, many say that a typical millionaire has around 7 sources of income such as business profits, capital gains, dividend income and more.
Thus, start thinking on how you can develop your different sources of income today. In fact, I found that a particular post that has listed 15 streams of income which are really doable.
Conclusion
People do not become an overnight millionaire by magic. Those who get there do so through sheer discipline and good money management rules/habits.
Habits are difficult to adopt, but easier to maintain once built. Adopt the right habits. Start building wealth today.
James Yeo is a finance professional in the Asset Management industry for more than 6 years. He also founded an investment blog at www.smallcapasia.com which is dedicated to helping retail investors find winning stocks.
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