Here are the ten rules of wealth building that we have discovered throughout the years. Don’t consider these principles absolute rules, but more of a guidance to how to think about your wealth in order to accumulate it. The principles are:
- Be motivated. The first principle has to with your personal situation. What led you to the thought of accumulating wealth in the first place? Was it a period of being low on cash or was it that you inherited a large sum of money? Whatever it may be it is important to know the reasons why you are accumulating your wealth. Each time you feel that you are slipping in motivation go back to these reasons and stay on the course.
- Give more than you take. The famous investor Benjamin Graham (whom we often cite at these pages) once said: “Each day should be a day of something foolish, something creative and of something generous.” Nobody wants to build wealth in a vacuum – the same way as nobody wants to build a company or do a project in a vacuum. It’s always a good idea to be humble, remember where you come from and give a large portion of what you have acquired back.
- Live with integrity. To build wealth requires a certain amount of integrity – integrity to say no to bad behavior. You don’t want to be a rich man or woman on the back of somebody else. If what you are doing does not feel right then it probably isn’t right either.
- Be courageous. To build wealth is about being courageous in times of doubt. When everyone fears that the world will fall apart that is when it is best to participate. This is especially true when the market has been down for a considerable time and you can pick securities much cheaper than usual.
- Be disciplined. To live with a budget perhaps feels a little bit awkward at first, but once you have gotten into the habit there is nothing more rewarding. The point here is to live within your means – not more nor less. Each month make a Google spreadsheet where you list all the money that comes in and all the money that goes out. Once you have done this for a couple of months you will begin to see other parts of your life will become more organized too.
- Avoid lavish consumption. If you want to build wealth you cannot live a lavish lifestyle simultaneously. It just doesn’t work. Remember that it is by living within your means and by having small expenses that you will begin to see your wealth accumulate.
- Nurture your environment. It is important that you have a supportive environment around you, one that you can trust. If you don’t have a supportive community around you, you need to build on those relations. Why is this important? Well, we’ve all found ourselves tough spots occasionally. The best way to get out of them is to ask for help. You cannot do that unless you have good people around you.
- Apply leverage.Financial leverage is often frowned upon in the investment community, but there is nothing inherently bad about it. Banks do it all the time. The idea being that you can borrow money at a certain rate and put that money to use in a different environment with a different rate. You can then make the difference in rates into a profit. Do not try to build your wealth in a vacuum, it will not work. Rather try to leverage the knowledge of others by staying true to your own values.
- Treat your investments as a business. When you are accumulating wealth – be it by analyzing financial statement, bonds or just looking at your bank statement – you need to treat the whole process as a business. “Due diligence” are words that get thrown around often in the investment world and there is a reason for that. Only by knowing what you own you will be able to make decisions based on business reality.
- Manage your wealth. If you don’t have any clear idea of how to manage your money get somebody to do it for you. The job of a good wealth manager is to protect you from your own worst ideas when it comes to money. Please don’t fall into the trap of trying to know everything yourself.
Today we have been talking about the ten principles of wealth building and how they relate to your personal fortune. They are more of a guidance on how to think about money and not absolute rules. As always the first step is the most difficult.
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