How to build wealth
Financial success is guaranteed if you follow three simple steps:
1. SAVE – Spend less than you earn, pay yourself first & automate.
2. PROTECT – Your family & your wealth.
3. INVEST – Be effective, keeping costs and tax low.
Saving is the area you can impose the most control over. Even those who are F.I and enjoying their money need to exercise control over their spending. For those who are building wealth, it really is the most powerful lever you can pull.
Start as soon as you can and commit to increasing your savings rate regularly. Thanks to the power of compound interest, increasing your savings rate by just £5 per week and investing in Equity will increase your retirement pot by £55,000.
Know your budget. Don’t save what’s left over after spending; spend what’s left over after saving. Pay yourself first and automate by direct debit as much as possible.
Spend intentionally; do not succumb to lifestyle creep or debt. Boost your income by creating passive income.
Investing effectively means buying a balance of Equities and Bonds in global index funds, wrapped inside Pensions and ISAs. Keeping costs low, using tax breaks, buy and hold for the long term. Don’t meddle or try to time the markets.
Small incrementals make a difference. If you are investing £200 per month into Equity, and you can reduce costs by ½%, this could add £75,000 to your pension pot.
Insuring against disaster takes care of the stuff you can’t control and could have an impact on your family’s financial future. Dying early or being unable to work due to an accident or illness can have implications, but those implications can be mitigated to some degree by planning ahead.
Do these things and you are guaranteed success. Not rocket science is it? And yet we are not taught any of this, and because there are so many other pressures on us, it is easy to fail.
Actually, it should be encouraging that it really is this simple - literally anyone can do it.
Yes, it is hard if you are on a low income…but it is still possible.
It’s not easy, but it is simple.
Everything you need to know to put your financial plan in place to become wealthy is contained in the first 10 posts on Grad Rags to Riches:
How to set up a simple budget using the 50/30/20 rule. Spend less than you earn, pay yourself first, and automate.
Learn how to spend intentionally. Watch out for 'lifestyle creep' and beware trivial unintentional spending as observed by 'the latte factor' concept.
Manage debt - good and bad. Set up an emergency fund and be a savvy shopper. Understand your mortgage LTV.
Understand the power of compound interest. How the value of your money can grow exponentially given enough time.
Understand the huge benefit of using ISA, LISA, and pensions to boost your returns.
A basic overview of types of insurance that can protect you and your family.
Investing is made to look complex and dangerous. Understand the jargon and the concept of risk and you will be able to 'do it yourself'.
How to invest using investment platforms. Keep it simple, buy and hold. 3 sample investment portfolios from Vanguard.
Being financially independent and not having to work, living off passive income - this is our end goal. Understand how this works using 'The 4% Rule' and work out how much you need to save to achieve this goal.
How to build your financial plan, keeping it short and simple using 3 key elements: financial goals, budget and savings plan, investment strategy.
Financial success is there for the taking - will you grab hold?