Everyone wants to have an endless supply of money to buy whatever they want without constraint. Or at least that’s what you’ve been told. Fast cars, nice clothes, big houses, and the list goes on.
But is that the right way to build your wealth? Smart, wealthy people have figured out the secret to getting rich and staying rich, and the secret is all in how you manage your money.
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First, let’s define rich. To you, is being rich having the latest and greatest toys? Or is it about having enough money to know that regardless of what life throws at you, you will always have financial security?
I used to think that I needed all the bells and whistles – the nice house, the endless supply of cash to spend my money on whatever I wanted and driving the beautiful cars. But then, as life aged me and my needs started outweighing my wants, I realized that the riches were in the love of my family, my special friends, and the feeling of financial freedom.
Wealthy people have a stash of cash they’ve invested that provides an excellent return. They know that living off the money their investments are making for them (the investment income), the better off they’ll be because they will always have their investments working for them without using their principal (the original investment). The key to wealth is knowing how you manage your money and get your money working.
The tips you need to build a life of financial security are:
1. Never spend more than what you are making
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The quickest way to building an avalanche of debt is to spend more money than you bring in. If you cannot pay cash for something, then the reality is you can’t afford it. Please get in the habit of paying cash, although, in our plastic society, that could mean charging it on your credit card then transferring the cash right away. Studies have shown that you are less likely to overspend when you track the money you are spending.
2. Invest in yourself and your future
You think you have time, but it will backfire on you if you keep putting it off. Start now and invest in your future. Even if you can only afford a little, invest that. You will be pleasantly surprised to see how that money will grow for you over time.
3. Have values-based financial goals
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If you have goals you are working towards, that will keep you focussed and working towards achievement. Know what you want to achieve and work at it consistently until you reach it. Always have goals that you are working towards to keep you financially motivated.
4. Ensure you protect yourself against risks
It would be best if you protect your biggest asset, which is you. You generate an annual salary for working, and you need to plan for life events that may cause you to lose your salary, such as severe illness or accident and job loss. You never know what life can throw at you, so you need to prepare for emergencies by protecting your income. Consider insurance options and saving for an emergency fund.
5. Do not carry debt
Debt is the most considerable way to lose your hard-earned money because it costs money to carry debt. Unless you’ve generously been offered an interest-free loan, that money that you owe comes with a price. Don’t let debt erode your net worth.
The finer things in life, the luxury items that we all work for, can come later in life. A smart and disciplined person will invest in their future earlier, build their principal investment, and live off the interest. That is the meaning of having your money working for you.
