The Truth About Wealth Building

We all want to think we are better off at each stage of our lives. But most people don’t see this as wealth building. Considering that wealth is often equated with greed and selfishness, it’s very easy to understand why.

Think about this. Wikipedia defines wealth as a quantity of things, possessions, valuables or resources owned by someone. That’s a rather dry way to put it. But while the amount of wealth a person builds varies, it is still a natural outcome of living. This doesn’t only apply to money or appreciable assets either. We all acquire things which add to our wealth.

As such, everyone should to take steps for securing their own future and accept that wealth is an important part of that future. Life is tenuous and things that seem permanent in our lives can come apart rather quickly. A better way to see wealth, then, is building a personal estate to help secure your own future.

The core of any estate is all of the things a person owns, so we all build a personal estate during the course of our lives, and we all end with some level of wealth. That’s one reason it’s so important to know that the personal acquisitions we make in our lives will ultimately either build security into our estate or add burden into it.

It only makes sense that everyone should take a serious and personal approach to wealth building. The reasons for building wealth may vary by individual but common to all of us are:

wealth gives us a dependable safety net in life
wealth provides options and choices when making important life decisions
wealth provides time to recover from unanticipated pitfalls
wealth increases our security in the retirement years
This leads to the first basic truth for building wealth, which is to immediately begin to live below your means! As you learn to personalize the importance of wealth and your own reasons for building an estate, you must consistently use this truth as the starting point on your road map to success.

This first principle of estate building must be followed now and forever. Regardless of your current income, regardless of future changes to your income, and regardless of changes to your family status and size, living on less than you earn is required. The path called “spending less than you earn” is your personal road to estate building and is your safety net in life.

Unfortunately, living within your means isn’t accomplished without some pain. It requires tackling debt, a difficult task for many people. Controlling and eliminating debt, particularly consumer debt, is absolutely a necessary step toward living below your means. It must be done, pain or not, as nothing will tax your ability to save more than excessive debt.

Living on less than you earn has to be your cornerstone for building wealth and is the number one ingredient for ongoing wealth building. It allows you to grow a personal fund of dedicated money, which will be money set aside to be used as your primary tool for acquiring long-term assets.

There are many ways to invest dedicated money, including equities, fixed income investments, hard assets and others. All involve subsequent important principles to be learned only after the first principle is in place: spend less than you earn.

Living on less than you earn has to become a lifetime habit. Begin by saving something from every paycheck. Saving early in life is most important, but saving at any stage of life is important too.

The quickest means to spending less than you earn is to create a budget. Start with a simple budget. Basic budgeting tips and guides are abundantly found online and all help control personal spending. A popular personal finance site is Mint: Money Manager, Bill Pay, Credit Score, Budgeting… and it will help you with budgeting and eliminating debt.

Beyond just building your personal wealth, developing skills to guide your financial life is a true confidence builder and it bolsters your self-esteem. It becomes a feel good habit to have. The personal control and confidence you experience will be necessary for making wise decisions you’ll use to increase your personal wealth.

While the core reason for planning and growing your own estate should always be personal security, living on less than you earn must always remain your number one principle of wealth building. Be assured it’s a lifelong habit used by everyone who has watched their own estate increase. You can be successful experiencing your own abilities for building personal security. Your own wealth building begins today by living below your means.

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Wealth Building – Danger! Don’t Try Re-Building Your Wealth Till You Read These 4 Steps First!

Many of my friends and colleagues have taken a serious hit since the financial and property market meltdown in 2008. Indeed, much of what people worked for all their lives has vanished as their asset values fell off a cliff. Some have even lost their businesses and others are grappling with serious negative equity and massive debt attached to their real estate. But even as everyone wrestles with these financial challenges, they’re finding new opportunities…and these opportunities are not under their mattresses!

There is always opportunity in crisis. On a personal level this is a great time for re-assessing your life goals and values. From a wealth building perspective, apart from snapping up distressed assets at bargain-basement prices, possibly the true financial opportunity is something less obvious. Perhaps it’s the opportunity we have to realign our thinking regarding wealth and how we build it. Here’s an outline of 4 steps you could take in order to start rebuilding your wealth.

Re-Building Wealth Step #1: Re-assess Your Portfolio

Chances are your investments are in totally different shape to where they were before the financial crisis. If you were an active investor, some of your stocks or real estate values may have taken a serious hit. At this point, it is your call whether to hope they will someday rebound or cut your losses. If the yields are holding up on your real estate it may be worthwhile to ‘trade out’ of negative equity if positive cash-flow is still being generated. If any of your investments have produced capital gains, cashing in now could be a good idea and provide some capital for better investments. Re-assessing your portfolio is a great first step in rebuilding wealth.

Re-Building Wealth Step #2: Re-balance Your Portfolio

Whether you were actively investing or more passively sitting on your assets, the financial crisis has probably taken your portfolio out of alignment. Balanced asset allocation is critical to long-term investment performance and wealth building. Taking your risk tolerance and investment horizon into account will help work out what asset allocation works for you. Just because certain stocks might be performing well at the moment doesn’t mean you should go chasing stocks and switch your cash out of bonds if bonds is where you need to be at right now.

Re-Building Wealth Step #3: Rethink Your Wealth Building Strategy

In addition to seeking out high-performing assets, a fundamental rethink on how you build your wealth may be required. It may mean employing wealth building strategies that were put off during boom times. Perhaps becoming financially literate should be a key objective right now. Rather than placing all your chips on high-performing stocks or property maybe you need to earn your right to invest and build up a solid foundation of cash or cash-equivalents (e.g. money market accounts, certificates of deposit etc) and bonds first. It’s recommended that at least 10% of your investment portfolio should be in cash or cash-equivalents at all times. This ensures you remain liquid so that a. You have funds to handle any financial circumstances ahead and b. You have funds to readily avail of possible investment opportunities. I think that many of us were guilty of some fundamental wealth building blunder by being over invested in real estate and stocks without first having a solid base of cash, cash equivalents and bonds. Now is the time to re-adjust this imbalance.

Re-Building Wealth Step #4: Focus on Growing Your Wealth

So, you’re keeping winning investments or cash them in, weeding out the losers from your portfolio and realigning your asset allocation. What next? Well, now it’s time to focus on increasing your returns and growing your investment portfolio. Whilst paying down debt, especially what I call ‘bad debt’, is hugely important, equally so is re-building your wealth with sound and advantageous use of ‘good debt’. Focusing on building wealth is critical so that the focus isn’t on debt reduction only. Apart from hunting down real estate or other business opportunities in your state or country you really must think and act globally. You simply can’t afford to rely on any one economy so don’t be afraid to seek out opportunities in foreign territories and emerging markets. Diversification by both asset type (stock, real estate, bonds etc) and geography has never been more appropriate.

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