By Brian Halim (guest contributor)
Many believe there is a great secret to becoming wealthy. Few realize that the simple basics are all you need to build wealth. The “secret” to wealth is not much of a secret. A variety of simple concepts and actions can be applied to achieve prosperity. Follow the following six steps and you will be on your way to building your wealth.
1. Spend less than you earn
The number one rule of personal finance is this: You cannot spend more than what you earn. You must live within your means, and take care that you never outspend your income.
2. Reduce Debt
Pay down your debt, and you free up resources that can be used to improve your net worth. If you are leveraging on your loan, repay your loans diligently. Reduce the amount of interest you pay, and instead use that money to your advantage.
3. Grow Income
If you want more, you need to earn more. Look for ways to grow your income. Maximize the lifetime earnings of your career as well as seek non-career options to profit like part-time jobs. Staying overtime in an office that does not pay you extra will not help you, unless it will lead to a promotion.
4. Save for the Future
Your emergency fund can protect you against financial setbacks or unforeseen emergencies. Be prepared and stay calm.
5. Invest in Yourself
Wealth also depends on your human capital. Invest in yourself by getting an education, and/or developing a skill. It does not necessarily need to be a degree. All you need is a marketable skill, or a knowledge base that can help you improve your finances.
6. Play Good Defense
Be sure to avoid the worst finance mistakes that people make. They can derail your gains and even ruin all of the hard work you put in to grow your net worth.
When reading the above actions, it is easy to dismiss them. If it were so easy, everyone would be wealthy. The steps that lead to wealth are simple concepts. Applying these concepts is much harder.
3 Building Blocks of Wealth: Discipline, Patience, and Persistence
In addition to the steps above, you also need to develop three qualities to ensure maximize the chances that you will achieve wealth.
Discipline requires a measure of self-control in expenditure. Rather than buying everything you want, prioritize and purchase only what is important to you. This will help get rid of debt and build your savings.
Earning money requires discipline. Growing your income means that you have to get up early and do extra work. Occasionally, you might have to complete tasks you find unpleasant. Knowledge and skills too are acquired only after you exercise the discipline to study and to practice them.
In today’s world, we are bombarded with promises of instant gratification. We want that expensive car now. You can have your vacation with a credit card. A 60-inch television can be yours if you qualify for in-store financing. The inability to wait and save up the money for what we want leads to debt and financial insecurity.
Results require time. A good emergency fund takes months, or even years, to build. Dollar-cost averaging in your investment portfolio requires decades of patience.
Persistence is the ability to keep with your wealth-building efforts. It is easy to give up when you do not see quick results, or when you see your neighbors enjoying their over-leveraged lifestyles.
However, in the long run, those neighbors are likely to have very little wealth, since most of the goods they enjoy have been bought with debt. It is hard to see that when everyone around you is having fun while you follow a more practical course. But stay the course.
Take action now. There will be many temptations along the way. It is up to you to decide which path to take. Follow the simple concepts of building wealth with discipline, patience, persistence, and you will achieve financial freedom.
The concepts behind wealth are that simple, but it takes hard work to put them into practice.
By guest contributor Brian Halim, a professional accountant who blogs at A Path to Forever Financial Freedom. Posted via www.MoneyMatters.sg, your guide on how to make more money, save smarter, invest intelligently, and enjoy your money like a pro. Click here to get our free report on what you must know about financial freedom.