We all have our own ideas on what is wealth-building however I am pretty sure there are some things we do all agree on.
And I am sure there are some that just don’t even give it any thought.
Well, I can tell you this much, every single successful business person think about wealth building.
In this article, we are going to talk about Wealth Building and the things you should know because what you don’t know can hurt you.
Look around, there is evidence all around us showing the results when we don’t put any attention into wealth building.
People losing their cars, homes and even ending up living on the streets because they have lost everything.
And if you are a couple especially starting out you both need to look at Wealth Building together and individual.
But first, let’s cover…
Table of Contents
What Is Wealth?
According to Wikipedia,
- Wealth: “is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions.“
- So in simple terms, Wealth Building is the process of creating multiple, long-term income streams from those assets.
Keep in mind long-term income streams are more than merely job-based income…
… it’s talking about savings, investments and income-generating assets.
Having to hold down 2 or three jobs does not build wealth… it kills you which I have covered in a previous article called ‘Is My Job Killing Me?’ which you can read here.
ln order to properly wealth-build, it is highly recommended that you:
- must first examine your future financial goals
- and then seek out the help of a reliable financial planner.
What Does A Financial Planner give?
A professional financial planner will assist you in developing an actionable plan to build a sustainable, strong financial future.
A sound financial plan covers a wide range of important areas to consider such as:
- Debt elimination
- making money
- saving money
- investing money
- tax planning
- estate planning
Naturally, as life progresses and you get nearer to retirement your focus shifts and your financial advisor will help keep you focused in the right direction.
Let’s take a look at some of the things you can do starting today to build wealth.
Lower Your Living Expenses
In case you didn’t know, this is the easiest step to take in building wealth.
And getting started on developing your financial plan as early as possible is best.
Regardless of age if you haven’t planned your financial future yet the time is NOW.
So, let’s get started by,
Drive an affordable car
It really doesn’t make sense to be driving a car you need a loan to purchase.
It makes much more financial sense to purchase a used car that you can afford to buy outright.
I mean let’s face it, those car loans come with a pretty hefty interest payment as well.
Why not put what would have been your car payment to work for your financial future instead.
By not having a car payment each month, you could easily invest in an RRSP and save toward your retirement.
RRSPs may not be the best choice depending on your situation and this is where your financial advisor comes in.
I will be writing an article on ‘How To Find a Financial Advisor’ in the near future so look out for it.
Lower your housing costs
Lowering your monthly housing costs can free up some money to invest.
If you are young and just starting out why not rent. It may cost less than that mortgage payment and you don’t have all the heavy maintenance costs which can really add up.
If you are a homeowner it may be in your best interests to make some extra payments and get that house paid off as early as possible.
Worried about penalties? There is a way around those nasty penalties
Save some money each month and when that mortgage is up for renewal make a lump-sum payment before renegotiating the terms.
This will help knock years off your payments saving you tons of interest overall.
If you’re empty-nesters like us why not consider downsizing.
I mean, do you really need that big four-bedroom house for just the two of you.
If your house is paid off you may be able to buy a smaller house outright with the proceeds from selling your current large home
Or if you plan on travelling maybe renting a place is a more suitable option, then the maintenance costs are not yours either.
Lowering your housing costs frees up money to be invested.
Don’t buy the stuff you don’t need
We are all guilty of this I am sure. I realized just how many useless things I would purchase when we spent a significant amount of time living on our sailboat.
Space was limited so we made the decision early on that everything that came on the boat had to have duel purposes unless it was absolutely essential.
By thinking about every purchase I made in this way I significantly reduced the amount of useless crap I bought.
This saved us a fair bit of money too which is always great.
Now that we are home for the winter I continue to think about purchases in that light.
I ask myself do I really need this? How will it make my life better?
If I don’t have a good enough answer then I don’t make that purchase and instead, choose to save that money for investment.
Create an emergency fund
One thing that is certain in life is that things happen.
Cars break down, people lose jobs, the frig or freezer breaks.
Inevitably, life will throw you a curve-ball and you will need an easily accessible source of cash for a major expense.
A healthy emergency fund would equal 3 to 6 months of income.
Work towards getting that saved up before working on other investments.
Save a percentage of your income
I have often heard it said that “It isn’t how much you make but what you do with what you make that makes the difference in life.”
I find this to be so true.
Regardless of how much money you make always pay yourself first.
By that I mean save 10% to 15% of your income off the top before you pay any bills.
The best way to do this is to set up an automatic payment from one account to another.
Have this money go directly into your RRSP or your saving account if you are working on building that emergency fund.
Then you live on the rest.
I used to be one of those people that would make the excuse that I can’t afford to invest but in reality, I can’t afford to not invest.
Develop Multiple Income Streams
To many of us, this may seem rather obvious but having that regular income stream is what makes any other strategy possible.
It is no secret that a small amount of money from this source on a consistent and regular basis can compound substantially.
The earlier you get started on this the better.
When it comes right down to it there are two types of income
- earned income
- passive income
It is the regular investment of earned income that ultimately makes passive income possible in the long-term.
It is important to ask yourself if that source of income can allow you to make regular contributions to your investments for the next 30+ years.
If your current job can’t provide that for you, it may be time to re-evaluate what you are doing.
Increasing the amount of earned income may create the necessity to change occupations.
Saving that 10% to 15% of earned income to first create that emergency fund and then for long-term investment is essential to wealth building.
Having that emergency fund ensures that when life throughs you curve balls that require a substantial expenditure you are able to handle it without forcing yourself into debt.
It is only when you achieve financial stability, that you can begin to build wealth.
As mentioned earlier, begin by lowering your living expenses, drive an affordable vehicle, don’t waste money on non-essentials and start saving regularly.
Now that you have established a stable financial foundation, you can begin investing in your future.
Understand that with sound investment opportunities there is always an element of risk involved.
It is important to take the time to establish just how much asset allocation is right for you, in other words, what level of risk are you comfortable with.
In the investment world, it is common knowledge that with the possibility of higher rewards comes a higher level of risk.
Once you have decided how you wish to spend on investments, it is time to investigate what wealth-building assets are right for you.
Wealth Building Assets
When asked what are the most common wealth-building assets available most people think only of stocks or bonds.
When you investigate the world of investing there is so much more to be found.
Life insurance isn’t typically a wealth-building tool it can be an important part of a sound financial plan.
Its purpose is to cover the cost of financial expenses in the event of your death and to ensure your loved ones are not left struggling.
For example, if you are the main breadwinner of your family and something should happen to you how will your spouse and children manage?
Can they make the monthly financial commitments or will they be forced to move to an unknown neighbourhood, change schools, perhaps sell the family car?
In order to properly cover this risk and ensure their lives won’t have to change any more than necessary because of your absence.
It is recommended by several financial professionals to obtain a term life insurance policy in an amount that would provide your family with an income equal to yours now.
Seek a life insurance company that offers term life insurance.
Term life insurance also offers the lowest rates, don’t get talked into a more expensive insurance program that promises an investment element that often doesn’t deliver.
Wikipedia explains a mutual fund as a type of financial investment made of a pool of money from many investors which is managed by a professional money manager and is invested in securities like stocks, bonds, money market instruments and other aspects.
Mutual funds are a convenient way to invest in stocks while being widely diversified which lowers the risk substantially.
It is a comfortable way for people with low-risk tolerance to invest in stocks.
Mutual funds come in varying risk tolerance levels.
Your financial advisor can advise you on which mutual funds would be best suited to you.
Real Estate Investing
This is one of the most well-known vehicles for wealth-building.
For those familiar with this form of investing it has traditionally been a high yielding investment.
Historically, over a 150 year period, real estate has proven to yield 8%. The next closest yielding asset is stocks at 7%.
Several factors contribute to real estates high performance including:
- potential for monthly cash flow through rental income
- a number of tax breaks available to investors
- capital gains upon sale of the property after a period of time.
If you are interested in real estate investing be sure to research which areas have the most opportunity. Several options include residential real estate, commercial properties and vacant land.
Some people do very well with house-flipping but I would caution you to really investigate these methods further before risking your hard-earned capital.
Building wealth through real estate investing is an attractive part of a long-term financial plan because of the ability to generate consistent cash flow, making it possible to reinvest a portion of the profits in order to expand the portfolio.
Private Notes Secured By Real Estate
If you are like me you would have had no idea what real estate notes are.
I have learned that real estate notes are simply promissory notes that guarantee to repay a mortgage or loan.
They are actually an alternative to investing directly in properties and give the investors the chance to act as a lender.
Private notes tend to be an attractive vehicle for building wealth through real estate because they allow investors to take on a more passive role.
This strategy requires more knowledge in order to be successful so be sure to do your research before starting in this area.
Real estate notes refer to promissory notes that guarantee to repay a mortgage or loan.
They are an alternative to investing directly in real estate, and instead award investors the chance to act as a lender.
Private notes are an attractive vehicle for building wealth through real estate because they allow investors to take on a more passive role.
This strategy does require a bit of background knowledge to be successful in, therefore investors should be sure to do their research before getting started.
Types Of Private Notes
There are many different types of private notes to be aware of and they include
- loans for investors who rehab properties
- seller-financed notes
- loans for homeowners
Loans for property flippers typically pay high-interest rates and are short-term usually ranging from 6 – 12 months.
Notes for seller-financed properties can be profitable if lenders are familiar with what to expect. Be sure to do your homework and familiarize yourself with seller financing.
It is also possible for investors to act as a lender for regular homeowners. It is important to screen potential borrowers and carefully examine the loan-to-value (LTV) ratio and a borrower’s debt-to-income ratio. When properly managed, private notes can be a strong investment.
Be sure you fully understand the system before getting involved in this type of investing.
Stocks Of Publicly Traded Companies
Another popular method of wealth accumulation is investing in publicly traded stocks.
Stocks allow investors the opportunity to buy shares in companies and earn profits through dividends often paid quarterly or yearly.
As previously mentioned, stocks have been proven to be a strong, highly successful investment over time earning an average of 7% rate of return.
Keep in mind that stocks are quite volatile in the short-term and are best suited to long-term investing.
Many investors find publicly traded stocks represent an opportunity to diversify thus spreading the potential risk.
Be sure to discuss publicly traded stocks with your financial advisor.
Invest In Yourself
Sometimes we are unable to increase our income at our current job.
Then you may have to get more education to qualify for that higher paying job by taking an evening course at the local college.
Or take distance learning online which will allow you to keep your existing job.
Become An Entrepreneur
Instead of building someone else’s dream why not build your own by working for yourself.
Today many are finding their passion by becoming an entrepreneur.
Quite frankly it’s not all that hard to do today…
You can start your own business based on the things you love to do.
Love to cook? Awesome…
Why not open a restaurant and cook for your customers?
Are you creative and enjoy helping other businesses, maybe you can start a web design company and design and manage web sites for local companies?
Another and very affordable option is to start your own online business.
Join The Trend And Start An Online Business
Many people today have taken up an online business where they don’t have to travel to a job and get to stay home with their family.
There are several types of online businesses but my favourite and the one I recommend for anyone starting out is a blog-based website as an affiliate marketer.
You get to pick what you like to do and write a blog about it.
Promote other people’s products and get paid.
The best part is that it still works even when you sleep. It never stops working for you.
There are plenty of other reasons which I covered in a previous article.
I have never been happier since I began my journey as an affiliate marketer.
What I really like about this training is you can get started for free.
That’s right, FREE.
They give you enough lessons to let you determine if it’s for you or not.
After that, you decide if you want to become a member or not but you get to keep your website.
By the 3rd lesson, you will actually have a website live. From there it is just a matter of continuously adding new content and continuing to learn about SEO, affiliate marketing and other ways to monetize your site.
- I absolutely love that I can work from home
- set my own hours and be in control of my future.
- I work as much or as little as I choose
- No more boss or job to deal with
- When COVID is over I get to travel again.
If this sounds like something that you would enjoy then please, do yourself a favour and check out the free training now.
Final Thoughts Of Wealth Building
The question was What is Wealth Building?
We have learned that wealth building is the process of creating multiple, long-term income streams.
Before choosing an investment strategy we first must get our affairs in order.
By that I mean we must:
- eliminate debt
- drive an affordable car
- lower our housing costs
- establish an emergency fund equal to 3 – 6 months income
- control your spending (stop buying stuff you don’t need)
Once you have got your affairs in order, it’s time to investigate the different investment opportunities that may be right for you.
There are many investment vehicles out there such as:
- life insurance
- mutual funds
- real estate investing
- private notes (secured by real estate)
- stocks (of publicly traded companies)
- education (increases your personal earning power)
- entrepreneurship (become your own boss)
- entrepreneurship (online marketing)
When deciding on an investment strategy, I would recommend working with a financial advisor who can recommend various investments that may be suited for your risk tolerance level.
Remember, there is a certain amount of risk involved in any investment.
With higher risk comes the potential for higher returns.
It is very important to fully understand your own risk tolerance.
You are working on building your future but you do need to be able to sleep at night while your assets grow.