4 Principals to Wealth Creation
There are literally thousands of books and educational based materials on how to grow wealth. Many are similar and some a bit more extreme with their ideals and principals. Regardless of what strategies they teach, there are always 4 recurring themes or variations of them that pop up; Debt, Savings, Investing & Protection.
These main principles are the key to building a strong and sustainable net worth. When looking to grow wealth a person must be able to control debt, save and grow their earnings and provide adequate protection to hedge against unforeseen complications.
Understanding the 4 wealth creating principles
Debt – Owing others money is one of the largest obstacles in creating wealth. One must understand the difference between good and bad debt and now how to use them to their advantage. For example, taking on debt to invest in a positive growth asset is worth doing while taking on debt for a depreciating asset is toxic.
With debt it is essential that you take control of your bad debt and work to eliminate it as soon as possible. Strategies to help with debt elimination includes, budgeting, debt consolidation, additional income streams to help pay down debt quicker, the sale of unwanted items to pay off debt and in worst case scenarios, bankruptcy.
Savings – Outside of an emergency savings account, savings really shouldn’t start until all bad debts are paid off. However, depending on your strategy that may not be an option. As with debt elimination, establishing a budget is the best way to understand the true ins and outs of your spending. Only then can you put in a strong savings plan and be able to stick to it.
When looking for a savings account, online accounts tend to have the better rates as they have lower overheads for the banks. Always shop around and compare banks and lending institutes as there are so many competitive options out there.
Invest – A good rule of thumb when it comes to investing is to have your strategy be based on your current life’s stage. This isn’t always the norm, but generally how most would invest. Some of the things you might want to look at with investing, include, tax minimisation, growth, diversification and government/employer contribution schemes.
Professional advice is always recommended when looking at short, medium and long term strategies. Be very mindful of whom you deal with when seeking financial advice as many consultants are no more than sales people pushing products that they receive commissions on. Some of these products may be excellent, but do your research and make sure that they work for you. Be proactive with your investments and make adjustments as need be.
Insurance – The first 3 principles can be rendered useless without adequate protection. What is the point of working hard to eliminate debt, increase wealth through savings and investing if it all can be taken away in an unlucky instant? Insurance is a must and in many instances forced, think about car insurance, home owners insurance, etc.
Lending institutes require insurance on secured items as they need to make sure their investments are safe. As an investor, you must do the same. Insurances that should be at the top of your list include: health, life, home & content, vehicle, business and any other types that might be specific to a certain need or event.
The above principles are pretty much outlined in all wealth creation materials in some form or another. Taking action is the only way to start to increase your net worth. The smallest step is a step in the right direction. Take the time to find quality help and create a strategy to get you on your way. Don’t let red tape in the form of information overload and industry jargon stand in your way, building wealth isn’t easy. It takes perseverance and sometimes failure to accomplish anything worthwhile.