The three steps of genuine wealth building

01 June 2011

If you want to build genuine wealth, you need to follow three simple steps. Does it sound oversimplified? It is not. People often wrongly believe that you need a special talent, or, at least you must have a privileged birth, to be wealthy. Neither is true. While history has seen many talented people at a loss to earn their daily income, there are many that were born with the privilege of a rich inheritance but eventually squandered away all their wealth to live a meager living at their old age.

The whole process of building wealth boils down to three simple steps. Step one: You need to earn enough. Step two: You need to save enough and Step three: You need to invest your savings wisely. While these steps may sound very obvious, they are not very easy to implement

Step one: Earn Enough

Earning enough is the first and foremost step of genuine wealth building. To earn enough, either you need to acquire a skill that is financially rewarding, or you need to build a successful business. A financially rewarding skill is that for which people will be ready to pay you, because your skill will help their business to thrive.

Alternatively, you may choose to have your own business, one that can guarantee you a steady flow of cash. A successful business will generate enough surplus income for you that can be saved or invested to build lasting wealth.

You should be prepared to work hard whichever vocation you might choose to follow. Many brilliant ideas for moneymaking and many opportunities will follow naturally as you decide to give your hundred percent in whatever you are doing. Lotteries or the get-rich-quick schemes seldom work to build genuine and lasting wealth.

While working hard has little alternatives, you must also consider doing what you enjoy most. This will give you the focus, energy and enthusiasm to keep at it and be successful in the long run.

Step two: Save enough

While it is important to earn, you cannot build wealth if you spend it all. You need to save. Modern lifestyle often makes little room for savings as people are often tempted to buy the latest version of everything and discard the old ones. When you make debts buying consumer goods like a piece of furniture, clothing or a new model of car, it causes leaking away of your wealth, as the asset value depreciates in the long run. You need to buy what you really need and plan your expenditure accordingly.

You need to cut down on unplanned expenditure to save money. Make it a point to spend less than you earn. It is the money you can save, not the money you make, that determines your wealth in the long term.

Step three: Invest wisely

While you save your money, you need to invest a certain percentage of your savings; it will generate a passive income for you. Select the investment options that you understand, and never put your money in risky investments unless you really understand the motions and the risks involved. Learn to diversify your investments in different portfolios. A certain part of your investment should go in the stocks and secured loans. Make an investment policy in consultation of your financial advisor.

These three steps really help you to build wealth over time, when you follow them meticulously. If you can rigorously execute these three steps of wealth building, you are sure to be on the track of generating wealth to secure your future.