Wealth creation can almost seem magical at times. You see people who turn £100 into £1,000 at the drop of a hat but when you try your hand at it, you either lose some money in the stock market or lose everything by gambling.
Did you know that the wealth of private households in the UK rose 13% from 2016 to 2018?
Although this was mainly from private pensions and property – there are still ways that even without having a property empire, you can make similar gains by following these simple wealth creation principles.
So if you want to earn more than 0.01% interest that the banks are so ‘generously’ offering – stick around!
What is Wealth Creation?
Well I guess the better questions to answer would be ‘What is wealth?’ and ‘How is it created?’ – let’s get into it.
What is wealth?
By definition, Wealth is ‘an abundance of valuable possessions or money’ – now, if you’re reading this, you’re probably salivating at the thought of having more money than you need.
To make money, you need money and that brings us nicely onto our next part – how to create it.
How do I create wealth?
This is what we’re going to cover – we’re going to be going from absolutely zero money, up to this ‘abundance’ of money that you can continue to grow! (In that order).
Let’s start the Wealth Creation
Let’s put ourselves into the shoes of someone completely new – starting their wealth creation journey from scratch. You have no money and potentially may need to borrow some. This is our first principle:
1. Don’t get into debt
Debt may sound like a gift from the gods. Want that new bag but your salary doesn’t allow for it? Screw it, let’s get a loan – I can just pay it off later!
This is definitely the wrong mentality to have and one that will quickly eat into any wealth you’re trying to create.
Loans usually have quite large interest rates which will accumulate interest onto the amount repayable to the lender.
You may not think this is a big deal as you’ve got a sweet repayment plan arranged but if you look at the bigger picture – over the life of the loan, you’ll have to pay back quite a sizeable amount of interest!
Don’t be that guy – save that cost and put it towards even more wealth creation!
2. Save Money
Now you’ve got yourself out of debt, you’re going to want to try and save as much money as humanly possible.
This sounds so stupid but save as much money as you can. When you get to the point where you want to kick the wealth creation into overdrive, the more money you have, the more money you can generate – it’s like a big snowball effect!
The best way to do this is to print off your latest few bank statements and/or credit card statements and go through every line to see if there are any subscriptions you don’t really need or any lifestyle changes you can make to help save that bit more money.
Obviously, to save money you need to ensure you are spending less than you earn. If you’re spending is exceeding your earnings – definitely do some analysis to get yourself into a position to save!
3. Start now
Instead of overthinking this – just hold your breath and dive straight into it! There is no better time than the present so if you’re sipping your drink thinking ‘I’ll start tomorrow’, well… don’t.
Like with a diet – the key is persistence. If you started a diet 6 months ago and were persistent with it, you’d look almost unrecognisable.
The same happens with saving. If you start now, in 6 months’ time you’ll have much more money than if you start in 3 months’ time.
JUST START.
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So.. now you’ve got yourself out of debt, recognised that you better get yourself saving ASAP, and have heavily audited your outgoings – you should have a little bit of money saved up to begin really accumulating some wealth.
Enter… investing.
Investing is an amazing way to get the furnace of wealth creation really firing – just make sure you keep the below principles in mind to make sure you get your money growing, rather than getting it gone.
4. Always invest for the long term, for max wealth creation!
Whatever you decide to invest in, you need to understand that to get the most out of your investment, you need to keep it invested for the long term.
Now, when we talk about the long-term, I’m not talking about a few months or a year. Long-term, in investing terms, is more like three to five years.
Investing for three to five years really helps to ensure that you iron out the peaks and troughs of the share market – people reacting off of daily news will naturally make the value of shares unexplainably rise and fall. The real way to get some real growth is holding it for the long term.
5. Be an intelligent investor
This actually is a nod to a super popular book called ‘The Intelligent Investor’ – it’s written by Benjamin Graham (who mentored the famous Warren Buffet).
It’s quite hard to read because it constantly refers to the 1970s (when the first edition was written) and it’s mainly focused on the US stock market but the underlying principles are true.
To be an ‘Intelligent investor’ you need to do the following:
- Get excited when the stock markets plummet (there are bargains to be picked up);
- Worry when the market gets too high (as what goes up, must come down); and
- Most importantly NEVER trade on emotion….
6. Don’t get emotional
As eluded to above, when you trade with emotion, you’re letting your heart rule over your mind. This usually doesn’t end well.
If you’ve done your research and are happy with what you’re investing in, then you should be able to ride out the waves of volatility that naturally occur during the days and weeks that follow.
When I say trade with emotion, I just mean that you shouldn’t rush to sell your shares just because they go down by a few percent.
You’ll probably find that over the medium-term, the share will actually rebound and you’ll have sold when it was low (probably a great time to buy!) and may want to buy in again but it will now be at a higher price!
This brings me nicely onto my next point – do your research.
7. Do your research!
Unfortunately, the stock markets are not a magical well of wealth creation. You need to put some serious thought into what you should be buying.
Key considerations are:
- What is the market like as a whole? (very high? Very low? Growing? shrinking?);
- Do I want to invest in single shares, funds, bonds?
- What’s the political landscape like at the moment? You’ll be surprised at how much stocks can fluctuate when there is a general election looming.
You’ll need to make sure you’re completely content that there is a strong likelihood that the share will rise in value over the long term so that you can sit back and relax when the short-term volatility starts scaring the weak-hearted away!
8. Invest regularly
So you’ve done your research and you’ve got a whole bunch of money saved up to get your wealth creation kick-started. You should just invest it all at once, right?
Wrong.
The best thing to do to mitigate the risk of your shareholdings going down is to do something called ‘Dollar-cost averaging’.
Dollar-cost averaging is where you buy into the same share/bond/fund at different intervals. This means that, although you may end up buying when the share is quite high at that point in time, it also means that you could also buy the same share when it’s relatively low – this is a great way to mitigate those losses.
The only downside is – if the share keeps going up, you’ll be buying in at higher prices every time! So use your brain and do what you feel is best.
9. Diversify
My final tip around investing is to diversify your investment portfolio.
This is by far the best way to mitigate those investment losses and preserve that wealth you’ve been working so hard trying to create.
To do this, you could be buying into different markets (like some US shares and some UK shares), different industries (like technology or pharmaceuticals), or even different investment types (like bonds, funds, shares, indexes).
By doing this, you’re safeguarding your investments by ensuring that one piece of dodgy UK legislation doesn’t topple all of your UK-based investments!
10. Invest in yourself
To put the cherry on our ‘wealth creation’ cake, the last principle is to invest in YOURSELF.
I’ve got a blog article on this so check it out if you want to learn more.
This is SO important. By investing in yourself through learning a new skill, or self-improvement – you are adding strings to your proverbial bow that you could potentially monetise.
Earning a couple of cheeky extra pounds outside of your wages will eventually snowball into something amazing after some savvy investing.
The Wealth Creation Roundup
To round this up, the key principles of wealth creation are:
- Don’t get into debt;
- Save as much money as possible;
- Start saving as soon as possible;
- Invest for the long-term;
- Be an intelligent investor;
- Don’t invest emotionally;
- Do your research before investing anything;
- Invest regularly to utilise dollar-cost averaging;
- Diversify your investment portfolio; and
- Invest in yourself.
I hope you enjoyed this article – if you did, please feel free to get involved in the comments and share it on your socials.