Tag Archives | build wealth

Get Rich Fast or Slow

get-rich-fast-or-slowGet Rich Fast or Slow

The rate at which wealth grows is determined by three things: the difference between your income and your outgoings (that is, how much you save), the nature of your assets and the nature of your liabilities.

 

Saving

Income is a flow of money which can be either spent or saved. Wealth is like a store of money where savings are accumulated. The more you save, the more your wealth should grow.

The nature of your assets

Assets are things of value that you own. Lifestyle assets are those which decrease in value over time, such as your house contents, your car and many other possessions which add to your lifestyle but not your wealth. Investment assets which produce the greatest wealth are those which grow in value and provide income such as bank deposits, shares, rental properties and businesses. By reducing your holdings of lifestyle assets and increasing your holdings of investment assets you should build wealth more quickly. Your family home falls into a third category called lifestyle property. It will add to your wealth less quickly than investment property as it does not produce income.

The nature of your liabilities

Your debts can be categorised along the same lines as your assets according to the purpose of the borrowing, that is, lifestyle debt (for living expenses and lifestyle assets), investment debt (for rental properties or businesses) and lifestyle property debt (the mortgage on your family home). Lifestyle debt is known as bad debt because it is money borrowed to buy things which go down in value or have no lasting value. Investment debt is good debt as long as the net return from the investments purchased is greater than the cost of borrowing.

Building wealth is about saving more, increasing investment assets, reducing lifestyle debt and borrowing to invest.

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Build Wealth With Old-Time Money Values

PocketwatchesBuild Wealth With Old-Time Money Values

Our forebears lived through hard times and, if they were alive today, would no doubt remark that we live in luxury by comparison. Despite their meagre household incomes and large families, by enlarge they were able to provide the essentials of life for their families without handouts from the Government and without going broke. Their expectations were simple – a roof over their heads, good food to eat, an education for their children and a few short years of rest at the end of their working years.

Theirs was a life without money machines and credit cards, where if you wanted to buy something you paid cash, and if you didn’t have the cash on hand, you saved hard until you did or went without. Borrowing money meant a visit to the bank manager who would take considerable convincing to approve a loan. Yes, you could have accounts with the local grocer or butcher, but they would be settled on payday. Trust and integrity meant that payment reminders were seldom required.

Saving was imperative, because there was little help available by way of Government benefits and it was considered shameful to ask for handouts. Everything was made to last, and if it didn’t, you mended it or recycled it, whether it was a pair of socks or left over scraps of soap. Work hours were long and there was no time, let alone money, to go wining and dining or taking long holidays. Entertainment was home grown, within the family or the community. It didn’t cost money to have fun and people were more important than possessions.

The standard of living that was acceptable a hundred years ago is certainly not acceptable now, but if we applied the same money values as our forebears, imagine how much wealthier we would be.

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New Year’s Resolutions to Build Wealth in 2011

Five New Year’s Resolutions

Regardless of whether your financial goal is to create enough wealth for financial security or a multi-million dollar empire, the starting point is the same. Fortunes are only made on a solid financial base and to build one means getting rid of some old money habits and developing some new ones. Here are five resolutions that will help you build wealth in 2011:

 

Spend less than you earn

Spending more than you earn will use up your savings or take you into debt. Spend less than you earn and you will save. It’s a principle that is simple to understand but very hard to do. Get it right, throw in some compound interest on your savings, and you will add to your wealth effortlessly.

Make the most of KiwiSaver

If you haven’t joined KiwiSaver make it one of the first things you do this year. It’s an easy way to double or even triple your money. If you are already a member, get advice on whether your money is being invested in a fund that is appropriate for your needs.

Set up an emergency fund

Life is full of unexpected surprises, some of which can be expensive. Having money on hand will help you stay out of debt, particularly expensive debt such as credit card debt.

Pay off debt

Just as compound interest on savings helps make your wealth grow more quickly, interest on debt will destroy wealth and debt repayments will make it more difficult to spend less than you earn.

Review your life and income protection insurance

Protecting your wealth is just as important as creating it. The death of a life partner or the loss of your or your partner’s income through health problems can see your life savings quickly disappear and your standard of living fall.

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