A Beginner's Guide to Wealth-Building

A Beginner’s Guide to Wealth-Building

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In this post, we from Faramira will provide a Beginner’s Guide to Wealth-Building. We will explain what is wealth-building, provide planning insights to wealth-building, implement strategies for wealth-building and finally share tips on wealth-building.

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A Beginner’s Guide to Wealth-Building

Wealth-Building, What is it?

So many renowned financial experts have given a lot of definitions to the term, “Wealth Building”, like an online financial mentor, Todd Tresidder, who defined wealth building as “the process of generating long-term income through multiple sources”. “This refers to more than job-based income; It includes savings, investments and any income-generating assets”, says Todd Tresidder. 

According to a personal finance expert, Debbi King, of Everyday Power, “many people view wealth-building differently. To some, it is a process of accumulating money till it reaches what she calls, ` a magic number as $1 million. To some, it is about steps taking to reaching financial freedom – being able to do any and everything they want to do without any financial issues. And to some, is simply working to having a couple of thousands in the bank”.

The wealth-building definitions of most of these financial experts rely on proper financial planning and insight into one`s future financial goals. A lot of individuals will embrace wealth building as a way to secure a more strong financial future. For them, it`s the willingness to sacrifice their time, energy and comfort to attain a financial position of which they can have anything they want at their fingertips, or do anything it will take money to do.

Wealth building isn`t rocket science; though we may compare its process to the process of building a house, and it`s never a revolutionary secret of the rich. It`s about all the simple things most of us think we already know, such as commitment, plan, and action, which we rarely do properly anyway. It can be perceived as a chain that is only as strong as the weakest link. It`s not too difficult; only need to know what to do, and with commitment and determination, financial abundance is just by the door. 

There are a lot of things involved when it comes to wealth building, such as skills or knowledge, source of income, time, habits and discipline. All of these elements are harnessed and then coordinated strategically to be able to succeed. However, a lot of people who have attempted building wealth failed because they weren`t faithful to handling these elements.

Wealth building isn`t a one day stuff; it`s a long term project, though it can also be a short term projection, depending on individuals goals and commitment. However, the long term plan is more ideal because it pays more and it`s more consistent. “Building wealth is a slow process of investing time and money at getting it right”, says financial expert, Stephen J. Wiseman, an online educational resource.

One characteristic of wealth-building that can`t be ignored is a risk. Because it involves investing money, the risk is involved. It means that individuals taking on this kind of venture bear risk. This is because the probability of losing money is visible. However, the issue of risk here depends on the kind of investment one goes into. Those investing in less-risky investments will have less risk.

Wealth building involves a process or steps.” The steps to building wealth are not so different from playing legos as a kid, where you could quickly take a random pile of blocks and build something solid, so also the process of building wealth. It involves a series of small decisions that move us along; one building block at a time” says, Bruce Fraser of Bankrate, an online educational resource.

According to J. Landon Loveall, Founder and President of Cumberland Wealth Planners, “It is from those daily decisions that individuals build wealth. And what you do now determines where you will be financially 20 years from now”.

In specific terms, this process of building wealth involves raising income from salary, or loan, or even from family members and friends. This money is then invested into profit giving ventures, and as the money grows, the investor continues to scout out more investment opportunities and expand; by spreading their funds across investment platforms. With time, the investor is able to acquire assets, establishes stronger businesses and companies. This will continue until they attain that financial position where they have massive wealth at their disposal.

Unlike other processes of doing other things where they may have completion face, the process of Wealth building has no end; it`s a continuous thing. Individuals continue to build; they continually scout for more investment opportunities to expand and maintain their business empires. No wealthy man in history has ever gotten enough wealth and stopped working to get more or maintain their wealth. So, is all about investing and investing and investing as your money grows.

Wealth is good and desirable. It`s achievable! Take a further step to learn how to get started with building wealth.

How to Get Started with Wealth-Building

When the term “wealth-building” is mentioned, do you picture it like building a house? If you do then you’re good to go. The first stage in building a house is a foundation, isn`t it? And what do you need to raise the foundation? You would need cement, sand, irons, concretes, stones and engineers, so is getting started with building wealth. You don`t actually need cement, sand and all of those as the case with raising a foundation of a house, rather you need skills, income, time and discipline.

Before you can start to build wealth, you must understand the purpose or reasons as to why you want to be wealthy. For some individuals building wealth can be short term stuff; to buy a better home or car. For others, it’s long term to set them up for an abundance of a financial lifetime.

If you’re building wealth for the short term, consider your own timeline and begin with a commencing date, however, more importantly, have the desired end date. Long term builders, on the other hand, may not have an end date as they are planning for a financial lifetime. For this type of people the end date never comes because in building for the long term, you`re always building on the wealth you made in years past. 

Some of us have been taught by our parents that the only way to succeed in life financially is to become savers. “ The financial timeline of life to wealth building has been to go to school to get good grades, get a job, buy a home, save money, be debt-free and if possible with what is left invest in the share market or buy real estate”, says financial expert,  Stephen J. Wiseman.

However, it`s not the fault of parents that some of us have not yet succeeded, but ours; not knowing how to use the skills acquired from school to make money for ourselves or not even having the skills at all, and save money with a good plan to lay a solid foundation for wealth building.

A Beginner's Guide to Wealth-Building - Important Components of Wealth-Building

Skills 

Skill is the first thing needed to get started with building wealth. This is because you need to know how to go about it; raise money, plan and strategize in order to succeed. Having some knowledge about money and investment is a good place to start. According to Todd Tresidder, “The first step towards financial freedom is the combination of financial education and wealth-building assets.

Individuals who opt for the right planning and investments can supplement their primary income and work towards financial success”, says the financial Mentor, Todd Tresidder. However, if you`re a novice, go for skill if you desire to succeed in wealth building. With knowledge, you can help yourself to plenty of financial information available that will help you choose in what direction to invest your money.

Income

Income is the major substance of wealth. Some people inherit money from their families, some have a lucky break and win the lottery, and yet for some, their income comes from their paychecks. All of these can be categorized as a “source of income”.  So, how can you become wealthy with these sources of income? First, you save, particularly those whose sources of income is paycheck or salary.

There are so many good savings methods you can adopt. Choose the one more convenient for you and be faithful to it. When your money has accumulated, invest it. And those whose sources of income are either inherited or won from lottery should invest it too.

Investment is key component of wealth building. The aim of building wealth is to make the money you have at hand multiply. This can only happen when you put the money to work for you, by investing it in other businesses or investment platforms like Stocks, Bonds, Mutual funds, Real estate, Option, Index funds, Exchange-traded funds, and many others.

These are the types of investments you might consider for long-term growth because they have great potential of growing your money “As an investor, you have a lot of options for where to put your money. It`s important to weigh them carefully,” says the financial expert, Arielle O` shea of Ned Wallet. And as your money grows, keep expanding; find more investment opportunities and reinvest. That way you become stronger financially.

Time

Time is crucial in building wealth. It requires so much attention so as to be able to know what is happening with your investments; what is working well and what isn`t, and when and where there are new investments opportunities to take advantage of.

Make sure you devote a very good part of your time for this if you want to be successful. Also, Building wealth could be a long process, meaning it may take a longer time to bring a result, depending on your plan.  Make sure you have the right timing for your plan.

Discipline 

Discipline is a virtue every potential wealthy person should imbibe. How do you handle money? How is your spending? In building wealth you are required to make a personal sacrifice; sacrificing your comfort, want, and even some of your needs to secure a wealthy future. Unfortunately, discipline is a common weakness among most people.

That`s why a good number of individuals are not wealthy because they have the skills and the money but lack discipline. Without discipline, you can`t succeed with building wealth. Be disciplined. And once you`re, you will be more economical with your money, be able to save, and that would mean more money to invest.  

At the end of the day, it`s up to you to achieve your own wealth. It doesn`t matter where you come from, it doesn`t matter about the past, however, it does matter about the future. And in making your wealth-building dreams into reality, don`t stop at this stage.

Take a step further to discover the secret to building wealth, rules guiding wealth building, the most reliable goal setting system for wealth building, steps in wealth building, tips that can help you build your wealth, factors militating against wealth building and expected value formula; which is key to a successful wealth building. Knowing all of these and their application into your wealth-building activities will surely guarantee you success.

The 8 Rules of Wealth-Building

wealth building rules image.jpg

Source: Google Image

Keeping to rules of whatever you do in life is the key to your success. All the activities that we engage in, carry one form of rule or other so that we can accomplish them with success. The question is, are you a rule’s breaker or a rule’s keeper? If you’re a rule’s breaker, then you’re not yet ready to start wealth building because it has strict rules to adhere to, to be able to make sense of it, but if you’re a rule’s keeper then you`re good to go.

The difference between those who are succeeding with building wealth and those failing is playing by the rules; play by the rules you succeed, fail to play by the rules you fail. That`s the game.

Choose a spouse with compatible financial goals (if you’re not married)

“Your life partner, especially in the financial sense, can make or break your chances of becoming wealthy”, according to research by the author and academic Dr Thomas J. Stanley. “Self-made millionaires are far more likely than the general population to be and stay married to the same spouse for life,” says financial expert,  Joshua Kennon, an online educational resource.

It’s essential you and your life partner both work towards the same financial agenda. If you seek early retirement, for instance, they insist to bring in extra income or clip coupons to save more money and take advantage of interest compounding. If your priorities are to live a debt-free lifestyle, they gladly support this without secretly shopping behind your back.

“Good debt” isn’t really good

With some exceptions, debt can serve as a form of bondage to enslave the borrower, usually for years. Picture your life with the freedom of not owing money on anything. Resist the temptation to “keep up with the Joneses” and charge up credit cards for things such as expensive clothes and lavish vacations. Make settling your debt in whole your priority.

A number of financial advisors say that borrowing to finance importation items like a home or education is “good debt,” however people tend to opt for much more expensive schools and houses when they pay for them with borrowing funds.

This can really keep you in debt for years, and cost you thousands in interest that could`ve funded your investment goals. So many high-qualities, yet bargain-priced schools are obtainable, and buying a home below your means allows for extra cash to settle your mortgage early and load that money into savings and investments.

Get clear on your relationship with money

This rule is undoubtedly less obvious, however, if you don’t like where your parents were financially at your age, make different, conscious and deliberate choices for yourself and your family. During your upbringing, the manner in which your parents handled their money has likely influenced your financial management presently. 

Money is nothing short of a piece of paper with the image of a renowned person on it, and when you comprehend what it represents to you, you gain into your earning, saving, and spending habits. If you have often felt that you don`t deserve to earn a much higher salary, live free of debt, or have as much money as “other persons“, these perceptions can cause you to make very poor financial choices that will hold you back.

Go with your true thoughts and break through them so you can begin building more wealth.

Live below your means and increase your living standard slow

Be bold to say “no“ to items you cannot pay with cash. Huge spending and getting into debt dramatically impact the money you`ll have available every month to invest. Purchase a home that costs no more than 25% of your monthly net pay, and obtain a 15-year mortgage at a fixed rate.

As more money comes to you, increase your payments on the mortgage so that you can settle it sooner and contribute to your savings. This way, you`ll set yourself up for a well stable financial life.

Move from the level of working for money to making your money work for you

“This factor cannot be overemphasized; indeed, it`s the way to create wealth and gain financial wisdom. When your money is working for you, life becomes more pleasurable,” says financial expert, Christopher Fitzpatrick of Ezine, an online educational resource.

Let`s look at it this way for instance: If your total monthly expenses are $3,000  and the credit balance in your savings or liquidity asset is $15,000, it simply means that your wealth is equivalent to more than five months.

Investment! Investment! Investment!

Inquire from anybody you perceive to be wealthy, investment is one of the top keys to their exceptional wealth building and the best way to attain financial freedom. The question is, what do you invest in? “One of the lucrative areas to stake out your money is real-estate – there are various aspects of real estate that you can venture into.

Also, stocks, bonds and shares are good investments to consider – these ones would help you accumulate money over time, and the money would eventually translate to wealth over the year,” says Christopher Fitzpatrick.

Associate with people of like-mind

The kind of individuals you hang with would have a direct effect on your view about wealth building; you can be won over by their own view. Associate with asset builders and those who are already on track on wealth building.

Build supportive environments

According to Todd Tresidder, an online financial mentor, “Create a supportive system that keeps you focused, on track, and literally draws you towards wealth, like relationships, your family environment, financial habits, work environment, daily rituals, and many more must be proactively designed to literally pull you toward wealth by supporting and reinforcing your plans.

Steps to Implementing a Wealth-Building Plan

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Source: Google Image

Almost all financial plans are basically focused on goals or events that will happen in the future like saving for your children`s college education or for retirement. “Because most costs go up over time, determining how much to set aside each month is a bit more complicated than just dividing the current cost of the item by the number of savings periods you`ll have before you reach the deadline that you set for attaining the goal,” says Wolters Kluwer of Bizfilinggs.

Estimate the amount you need

Use the below steps to estimate the amount you need to reach your goal and see whether your wealth-building plan is adequate.

1. Thoughtfully estimate the cost of the goal at the date you plan to reach it. To go about this, take the present cost of the goal and adjust it for inflation up through the time you will attain the goal. For example, assuming the current cost of your goal is $50.00. After examination, you believe that the cost will increase by about 4.5% per year for the next 25 years. Let say you want to reach the goal at the end of year 25, you will have to accumulate $150,270 to do so.

2. Take the amount of money that you will budget for the goal and determine how much it will grow between now and the date on which you want to attain your goal. ( This process is more like figuring how much a particular item will increase in cost over time, except that rather than an estimated inflation rate, you`ll use an estimated growth rate.) Make the preliminary calculation based upon what would happen if you didn`t make changes to your savings vehicles. For instance, if you presently have the money in a 10-year CD, use that interest rate to determine the rate of growth.

3. Estimate how much you will periodically save to attain your goal and how much this investment will add up in cost over time based on what you determine its yield will be over the life of the investment. Otherwise, you will accumulate these savings in a tax-free form like municipal bonds, or tax-deferred like within a qualified retirement plan or an insurance policy, you should make this computation based on after-tax yields.

4. Add together the amounts you determined in 2 & 3. Equate this amount to the project of your goal, which you estimated in 1 above.

If the amount of the projected investments is higher than the amount of your projected cost of the goal, your savings and investment strategy is right. Note that you will need to revisit these computations periodically to ensure that the various assumptions you made in the process of setting up your plan are correct and have not changed with time.

However, if the amount of your projected investments is less than the amount of your projected cost of the goal, you`ll definitely need to consider making changes necessary to attain your goal. 

Computing after-tax yield

To properly compute your after-tax yield on an investment, first, you need to know your tax bracket (marginal tax rate) and the defined, pre-tax yield of your investment. The formula used in arriving at the pre-tax yield you`ll need to equal a specific after-tax yield is, for instance,

Michael, who is in the 15% marginal tax bracket, bought a seven-year Certificate of Deposit (CD) with a yearly pre-tax yield of 3.25%. To find his after-tax yield, he subtracts .15 from 1.0, which gives him .85. He multiplies his pre-tax yield (3.25%) by .85 to determine her after-tax yield is 2.75%.

Implementing your wealth-building plan

After going through the important steps of identifying your current assets, setting goals and planning how to reach your goals, you can now begin the most important part: Taking the plan forward and making it work.

A financial plan can be beautiful and captivating in terms of how it carefully identifies your current assets, captures your vision of the future and plans how to make your financial dreams come true, however, if it`s not implemented it will just a dry collection of “what-might-have-been.”

Monitor your plan to keep on track

The fact is that nothing lasts forever, especially an individual financial plan. If you have invested the money, time and effort to implement your financial plan, you definitely don`t want changed circumstances to make your plan outdated.

A lot of changes can occur in life that could make it advisable for you to change your personal financial plan. When you`re faced with changes in circumstance, the first principle: Don`t be overwhelmed.

Below are the two categories of changes you need to consider:

  • Those that have a direct monetary impact
  • Those that don`t have a direct monetary impact

Changes having a direct monetary impact

The below changes have a direct and immediate monetary effect on your financial plan

  • The cost of goal increases or decreases
  • The timeline for reaching the goal increases or decreases
  • The ability to make the required savings to reach your goal increases or decreases
  • The yield (dividends, interest and capital gains) on your investment or savings increases or decreases

You have to anticipate that any of the first three items will change with time. Basically, when we talk about changed circumstances within the context of amending your

You have to anticipate change in any of the first three items somehow over time. When we talk about changed circumstances within the context of amending your financial plan, we simply mean changes that are huge enough to potentially affect whether you reach your goals.

Changes having an indirect monetary impact

In addition to the above changes that have a direct monetary effect on your financial plan, there are changes which greatly affect your financial plan indirectly. These less direct changes could be just as important as the direct changes, however with the added complication that you could be less likely to think about their link to the financial planning that you have done. These include:

  • Tax law changes. Changes to the federal tax law can have a huge impact on your financial plan. If, for instance, the tax rates increase, you could well have to count on increased savings or increased yields to make up for the additional money lost to the tax collector. Estate tax changes could affect your strategy for making gifts and bequests.
  • Business climate changes. Huge changes in the economy will likely affect your plan. A general increment in rates, for example, can be expected to pull down the value of your fixed interest rate investments, making it needful for you to increase your savings or increase your investment yield (something should be less hard because of the climbing interest rates.) A general reduction in the interest rates will likely increase the value of your fixed interest investments; however, will make it harder to maintain your current yield on future investments.
  • Personal family changes. This category is the most fluctuating because any number of changes to your family situation can greatly affect your financial plan. Obviously no list can contain all of the things you should watch for, however here are some of the most common factors:
    • Changes to marital status: marriage, separation, divorce, remarriage
    • New children (by birth, marriage or adoption), new grandchildren, nephews or nieces
    • Job or business changes that greatly change your current income
    • Health problems suffered by you or your family members
    • Your disability or death (or the disability or death of family members or business partners or associates
    • Changed educational plans for your children or grandchildren
    • Sudden wealth (like inheritance) and sudden financial reverses (like from a legal judgment)

The Importance of Goal Setting in Wealth Building

The Importance of Goal Setting in Wealth-Building

Source: Google Image

We may all have heard the adage: “Watch out what you wish for, you probably might get it.” In the context of wealth building, this means, “if you set the right goals you get the right result, and if you set the wrong goals you get the wrong result.” So deciding where you want to go with wealth-building key to you succeeding.

According to Barbara O’Neill, ph. D., an Extension Specialist in Financial Resource Management, “Financial goal-setting is the key to building wealth. Studies have shown that, at every income level, people who set goals are more successful financially.”

What would goal setting do for you? It will give you direction and focus. According to Todd Tresidder, “Goals are the focal point that gives your life direction and drives successful forward momentum. It helps you focus your attention, mind, energy, resources and time in a certain direction – that would give you the result. And without goals in your attempt to building wealth, the journey would be like a sailboat without a rudder; it`ll just spin in circles. Without goals, your wealth building is as purposeless as driving a car without a destination in mind.

The reason why goal setting for wealth building is vital is that specific changes do occur in your mind as a result of so many thoughts flying through your head. And setting goals gives you the following competitive advantages over others who do not set goals.

  1. The first advantage is that your goals trigger your mind by asking questions about how you`ll achieve the goals. Asking the relevant questions is more than half the struggle to achieving the goals in the first place because it focuses your attention. Developing a goal and asking needful questions about how you`ll achieve it actively engages your mind in resolving the discrepancy between where you are now in life, and where you desire to go.
  2. The second competitive advantage is that your goals make you focus your attention on where you want to go. Without goals in place, your mind is in a vacuum and has absolutely nothing to focus on, and could give room to wrong ideas taking over your mind and mislead you. Wrong focus creates the wrong outcome and goal-oriented focus creates the results you want most. Goal setting also lifts up your objective from underneath the bottomless pile of possibilities that exist in the world and positions it in the forefront of your mind.
  3. The third competitive advantage is that goals form a compelling vision in your mind. This helps push you to put forth the effort to achieve the goal – like putting a carrot in front of a horse will draw you forward to take step after step to reach your goal.
  4. The fourth competitive advantage of goal setting is that your mind begins to notice opportunities to achieve the goal that could have otherwise been overlooked. This is simply because of the front-of-the-mind awareness resulting from setting the goal.

The two important aspects of goal-setting: Envisioning the goal and making your goals measurable.

Envisioning your goal is the first step to achieving your goals

Envisioning your goal is the first step to achieving your goals

Source: Google Image

In envisioning your goal, let`s look at your personal financial wants and needs, what`s the best way to set goals that will help motivate you to achieve them?

So many of us are not strongly motivated by money itself; unless you`re a coin or currency collector, the excitement of having five million dollars in a locked vault would disappear quickly if you couldn`t spend it or use it in any way.

In the same vein, a purely monetary goal could not be a very powerful motivator: A lot of us need to focus on tangible items or tangible rewards. However, some people are still motivated by money and are moved to action by the numbers. If you`re such an individual, you can move right on to the discussion of making your goals measurable.

For many of us, though, one vital step of the first steps in goal setting is finding a concrete goal or goals that motivate us emotionally. “ How about that powder-blue `59 Caddy convertible, the retirement villa on Maui, the ability to cut back the hours you work, or the satisfaction you would gain from setting up and funding your own charitable foundation?

Spend a day or two making up a list of the things you`ve always wanted, and prioritizing them, you`ll probably find that you have some short-term and some long-term goals. Make sure these are your goals and not someone else`s and not what you think you should want,” says business expert, Wolters Kluwer of Bizfilings.

Measurable goals are the key to success

There are two steps to making a financial goal measurable and achievable; reduce your goals to a monetary amount and set a deadline to reach the goals. 

Although pure monetary goals aren`t very motivating for a lot of people as stated earlier, however, most goals carry a monetary price tag –  the issue of money as it relates to goal setting cannot be completely written off. How close you`re too having the funds to pay this price is a convenient way to measure your progress toward reaching your actual goal.

Put your goals in writing

Once you decide on your goals, you put them in writing. Goals are physically written down offer two important benefits:

  • With your goals written down, you won`t have to worry about remembering all the terms of your goals, and the precise deadline and economic projections behind it.
  • The moment you have reduced something to writing, chances are that you`ll consider it as more important than a promise that you have only mentally made to yourself.

Many of us have been seriously warned about being careful about signing things; therefore you can take advantage of this mindset by making yourself “sign on” to the term of your goal.


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