7 ways to build your wealth starting today
Things are always so much more complex, when you do it for the first time? Can you remember using your smart phone for the first time? I took mine on holiday to figure it out. Well, finances and building wealth are no different, with the millions of opinions on the internet, who do you believe? Here’s my qualified view based on 25 years of experience.
1. Have a plan
Hey look, there’s little point jumping ahead here, if you want to succeed, know where you’re starting from and where you want to go.
Start by calculating your net worth, what your own less what you owe. I meet so many people, well meaning and educated, who don’t know what they have in their pensions, sound familiar? You need to know this, if you want to get ahead financially, no more burying your head in the sand, open your spreadsheet and get typing, or go and download my template.
If your net worth is a negative number, it means you owe more than you own, and that you have a little more work to do.
2. Make your finances automatic
Our decisions and actions are based on our feelings; if you have a good day at work, you’ll act differently than if your partner/spouse is annoyed with you, right?
For this reason alone, you need to automate your finances as much as you can, also unless you’re in the 1% that enjoys this stuff, finances aren’t exciting! We love want money can do for us, be few people get excited about doing their own spreadsheets.
Take routine thought out of everyday actions; ensure you set all your regular bills using direct debit or standing orders, I share The Bank Account system with people to make this work smoothly.
You need to go one step further than just automating your bills, your first payment each month needs to be from yourself, to yourself. I want you to save the first hour each day that you work, so for many who work an eight-hour day, this is 12.5% of your gross income. Set the payment up automatically into your retirement account.
3. Take advantage of your employers’ retirement scheme
Every employer in the country now offers a workplace pension, if you meet certain criteria (age 22 to state retirement age and earning over £10,000pa) you will be automatically enrolled in the scheme. Please remain in the scheme, do not opt-out.
Now, if you don’t meet these criteria, because you earn less or you’re younger, your employer must still allow you to join, if you ask, and in some instances, they still need to contribute.
Please take advantage of this, even if your employer is not legally obliged to contribute on your behalf, having a scheme set up in place saves you the effort of sorting it yourself.
Remember, if your employer matches your payments, it means you just got a 100% return on your money, for no risk, no brainer.
4. Check your spending
It’s no secret that it’s difficult to fill a bucket if there’s a significant hole in the bottom. But if the inflows are greater than the outflows, overtime the bucket will fill and depending on how much bigger the inflows are when compared to the outflows, will depend on how long it will take to fill.
I use the Bank Account System in The Money Plan, a simple system to take charge of your spending, automating all of your bill payments. Simply open two bank accounts, one for your regular bills and the other for your day to day spending.
Arrange for all your bills paid from your bills account and ask yourself three questions;
- Do I need this payment?
- Do I want this payment?
- Can I get a similar experience for less?
Reduce your spending as much as reasonably possible. Then, from your bills account, to your WAM (Walk About Money) account, every week on a Wednesday pay yourself an allowance to cover all of your variable spending items such as your coffee after work, your haircuts, your Friday night party-night money, Saturday shopping and Sunday pub lunch etc.
You see financial planning is so like nutrition and diets. If I said don’t eat pizza, wine, chocolate i.e. your thing, ever again, you’d last, maybe a fortnight. But by having a little occasionally, you more likely to stay on the program. That’s how the Bank Account System works, pay yourself an allowance, enjoy it, but when it’s gone, it’s gone. Don’t dip in for seconds, but, because you’re paid weekly, it’s not long to wait until you get paid again.
5. Make the most of your money
It makes no sense whatsoever having lots of money on deposit earning 0.1% and credit card debt or loans costing 15%. If you have unsecured debts, keep a little for emergencies, say £1000 and then repay your unsecured debts with passion, this will free up your cashflow, so you can invest more.
If you have no debts, you should hold between three and six months, of your expenditure on deposit, and then invest the rest.
Consider a pension as the first option for investment because it is tax efficient and limits your access, so it protects you, from yourself.
If you are earning less than 3%pa, you’re not growing, you’re treading water. You need to be beating inflation over time to grow your money.
6. Make investing a priority
Your first payment from your bills account, should be from yourself, to yourself and make it 12.5%. Better still, have this automatically deducted from your salary by your employer, into your workplace pension scheme. Make it automatic, set and forget, after a few months, I promise you you’ll forget you did it.
Look at your expenditure sheet, if you’re paying more on car payments or holidays than your retirement, you have your priorities the wrong way around.
7. Be patient
It will take time to become wealthy, be patient, trust the process, don’t mess around with it. When you invest, invest globally in index funds, keeping your fees low and diversify wide. Look at www.Lexo.co.uk for examples of professionally allocated portfolios.
Don’t be attracted to the next best thing, ignore the trends and fads, get wealthy the proven way.