Rich folks do not get involved in get-rick-quick schemes to build wealth. For them, the process is slow, gradual, persistent and consistent.
People who have succeeded in business understand how to take calculated risks, make their money work for them, build up savings, and avoid mistakes that can wipe out everything in the bag.
For those who want to increase their net worth, taking risks with investments has produced a higher return. But, at the same time, caution is needed to avoid bad investments.
Insights from a poll on the wealth-building habits of rich people underscored frugal spending, calculated investments and strong saving habits.
The poll, conducted by Bankrate.com, an online business reporting media based in the United States, showed that the wealthy live strictly off wages even when they are working for themselves. Thus allowing their investment portfolios to grow.
By living within a set income level and not drawing from investment returns, portfolio builds up faster and improves income that can be withdrawn in future.
Ignore ostentations
As wealth grows, the urge to live bigger may increase spending. Not getting caught up in the competition to keep up with ostentation is critical to building wealth.
It is about establishing a standard of living that brings happiness but does not make you feel that you have to go bigger the next year.
Set long-range goals
In order not to derail your financial plans, set long-range goals as to where you would like to be in two years, five years, even 10 to 20 years, and make sure you avoid anything that derails the plans.
Never think that more returns from business investment is good reason to begin to buy luxury goods.
Investing habits of the rich share three major traits. They keep on diversifying portfolio and monitor with discipline the targeted asset classes against set goals. If anyone strays outside an acceptable range, assets are bought or sold to bring them back into line.
While most people do not have the time or expertise to monitor their portfolios daily, experts advise setting rebalancing parameters based on asset prices rather than a pre-set time period.
Develop a financial plan
Experts counsel that financial plan is a must for investors in order to avoid getting caught up in a market frenzy and buying high and selling low. With a financial plan, attention is always on the big picture about targeted asset-classes which can yield impressive returns.
It is rare to see the wealthy abandon attractive an asset class worth investing in. Instead, they typically underweigh or overweigh certain asset classes, depending on the economic situation.
Maintaining a large position in fixed income, for example, is advisable now because high interest rates are making up for inflationary impact. But that does not mean one should ignore equities in preference for bonds altogether.
The rich pay attention to opportunities to shift into equities when the timing is right.
Savings habits of the rich
Spending and saving go hand in hand, since whatever you do not spend is potential savings.
For wealthy people, there is a two-pronged approach to saving. They generate more cash inflow and reduce cash outflow. They focus on buying things that will hold value or appreciate in value instead of allowing expenses to eat into savings through continuous consumption.
“A lot of wealthy people, when they’re on their way up, manage expenses so tightly. Instead of living within their means, they live below their means,” says an expert in personal finance.
Keep the end goal in view
Set written, clear, attainable goals for yourself and review these goals often.
Decide how much you want in one year, five years and 10 years. Write it down. Decide on an amount you will save daily, weekly or monthly and start saving.
If possible, put in place automatic savings triggers, so that a portion of your earnings goes from your pay cheque into a separate savings account.
It is easier to achieve these precepts with an end goal in mind. Every time you put money toward saving, you are a step closer to achieving the goal.
Those who gain wealth believe that everything they do is ultimately done to fulfil set goals.
However, some people have to be consistently reminded about the need to save, and the more they do it, the easier it becomes.
Take calculated risks
Savers, like investors, also need to understand risk if they want their money to work for them.
Savers often think they cannot afford to lose any money by investing in equities or fixed instruments like bonds and treasury bills. They do not realise that when they do not make their money work for them, they are losing.
Inflation, for example, creeps up over the years and steals from your savings if you are not earning enough to make up for it.
The disciplined, steady approach to saving, investing and spending puts you in better stead in the end.
