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10 Principles of Building Wealth - Most of us don’t think about money other than  what we’re spending on and selling. But did you know there’s more to money than just that? Unfortunately, so many of us have not been told about the secrets of money. There’s a reason the 1% are at the level they are: they know the secrets and they follow the rules. If you want to be a part of their clan, here are some wealth building  principles that you can follow too. 
Source: by Morgan Housel

1. Invest in appreciating assets

I know you’re wondering what appreciating assets are. Well, they’re assets that increase in value with time. This includes the stock market, bonds, and real estate. While most may be stacking up on liabilities, people who understand money are purchasing appreciating assets.

If you have a fully functioning phone but decide to buy the latest iPhone because, you know, why not?  This could be seen as a liability. Similarly, if you are constantly loaning luxury cars, bags or clothes, you are also burdening yourself with liabilities.

If you would like to build wealth, you need to know that your accumulated wealth is dependent upon what you do with your money. The idea is simple, if you buy an asset at a certain price, over time, it appreciates in value and before you know it, you’ll have something worth more than what you paid for.

Since appreciating assets work through the power of compound interest, they don’t just build linearly but instead build exponentially. This means that if you invest $1,000 with a  10% interest, the next year you’ll be starting at a base point of $1,100 and earning the 10% interest on that!

As exciting as that sounds, investing your money always comes with the risk of  losing it. However, it’s better to risk it and get a possible rise in value rather than purchasing liabilities with a sure decrease in value.     

2. Avoid conspicuous consumption

As much as we may get the urge to fulfill our desires, nobody ever spent their way to financial freedom. Every day we’re faced with the choice of deciding whether to give in to the consumption temptation today or be patient and enjoy wealth tomorrow.

Although tomorrow is never  guaranteed, wouldn’t it be better to take the risk of preparing for it rather than it finding you off guard? Let’s say you saw an advert about a vacation deal or a discounted membership at the gold club, all these sound really great but may result in a dent in your pockets. Like Frank Herbert said, “Seek freedom and become captive of your desires, seek discipline, and find your liberty.” The choice is yours to make.  

Consumerism causes your limited resources to be  directed toward lifestyle and away from building wealth. If keen enough, you’ll notice that wealth  builders live modestly by spending less than they can afford (in money, time, and energy). They do this to invest the difference for greater value in the future.

The reality of wealth is that it’s a form of delayed gratification. So if a flashy lifestyle is your aim, then consumption becomes a priority which makes wealth eternally elusive!   

3. Apply leverage to build wealth

When you have leverage, you have the tools to build wealth. You won't get wealthy by trading time for money, and you can't do it all yourself.  

You can’t work like a donkey and expect to land  on wealth. Leverage means you work smarter, not harder. The beauty of this is that it comes in various forms, have a look at these: 
  • Financial Leverage: This means that you can choose to invest and use other people’s money without having to risk money from your pocket.
  • Time Leverage: Involve other people instead of exhausting the 24hrs you get in a day.
  • Technology Leverage: Using other people’s equipment to increase output.
  • Marketing Leverage: When you involve other channels, the reach is more  comprehensive than a one-on-one approach. 
  • Network Leverage: Using other  people’s connections and approaches to expand beyond your own.
  • Knowledge Leverage: Utilize other people's talents, expertise, and experience that you may not possess.   
As you can see, leverage allows you to build  more wealth than you could ever achieve alone by utilizing resources that extend beyond your own! If you aren't using leverage, then you're working harder than you should only to end up with less than you deserve. And if being wealthy is your goal, using leverage is your best bet!

4. Detach yourself from things you don’t need   

Remember we talked about liabilities earlier  on? Well, they’re mostly what you need to detach yourself from. These are material things that may offer you temporary joy but, in return, mess with your financial prosperity. 

I mean, there’s no need of paying hefty car insurance on a luxurious car when you’re struggling to make ends meet. Letting go of certain liabilities will save you a lot in the long run. This doesn’t mean you live like a miser. No. Instead, be frugal with your expenditure. Understand what makes you happy and enjoy it in moderation.

It is a matter of reevaluating priorities. For  example, instead of paying for cable TV, opt-in for a streaming service instead that  costs way less. Liabilities are the reason why you work so hard but don’t feel any richer  with it. They give short-term satisfaction but keep you from reaching your long-term goals.

The  best way to avoid getting things you do not need is to create a budget that works for you. A great budget helps keep your liabilities in check and save you from the terror that is debt.

5. Identifying Common Money Pitfalls

All of us might, at some point, have fallen into the hands of consumerism. We are often surrounded by businesses telling us why it would be great to give them money in exchange for something.

However, as you give them this money, you are giving it away with no monetary benefit, all the while, they are garnering profits from your cash.  

Society is designed for you to spend as much as possible yet provide a pinhole of opportunities for you to gain wealth. Don’t believe it? Why is it that in school, we’re always taught how to work hard and secure a good job instead of how to actually generate wealth and make money?  

We’re not taught how money works. One of the major misconceptions that hold people back from achieving their financial potential is the idea they need to trade their time for money. Why?

The system requires a majority of us to remain in this money slavery trade. Although landing a good job may sound like a good fix, the problem is that an increased salary does you no good if you increase your expenses at the same rate!

Also, many find themselves blinded by student loans, credit cards, and car loans that are all tied to interest rates. If you’re not careful, large balances can cripple your finances for decades. Try to understand  how interest works before committing to any form of monetary aid or cushioning.   

6. Know where your money is going   

Every penny matters and if you don’t believe  it, try working on a no-budget and see how bad your debt situation will be. Applying this basic  principle requires you to sit down and review your spending habits.

Something small such as looking  at your bills instead of stashing or throwing them away will help you understand every item on your bill. Any form of fun or recreational spending should come after you’ve cleared your bills and funded your retirement and investment accounts.

You might be shocked at how much you’re throwing away by giving into guilty pleasures. Understanding every single cost will also enable you to understand how to best manage your money.

If things are bad, you might come to find that you cannot afford to enjoy a latte every morning or daily lunch takeouts. You might also come across some monthly subscriptions that you may have forgotten. 

At this point of awareness, you’ll be able to understand the dynamics at play,  telling you how much everything costs and if you actually need them or not.   

7. Automate, automate, automate!

Sometimes it’s just simply hard to keep up with the numbers and so, a hands-off approach is necessary, especially when it comes to money.  

A good example is how your employer automatically  makes your retirement contributions. You simply don’t have to worry about missing out on a payment once it’s set up.

So imagine automatically paying for those credit card bills or sending money into savings from your checking account, all thanks to automation. Not everyone has the discipline to keep tabs on everything, especially when it comes to paying bills.  

Automation saves us the pain of being charged late fees or unwanted interests. You wouldn't build a business without a proper business plan, so why should you compromise on building your wealth?

Design your wealth plan based on proven business principles that lead to success. These principles include accurate record-keeping and accountability, just to mention a few.

8. Be courageous

It’s human nature to be cautious when venturing independently simply because we are social beings. However, wealth doesn’t come by following the crowd. It requires you to be an independent thinker and take the risk others chickened out  from.

To put it in layman’s language, wealth will come from doing what others won’t, so you can have what others never will. What you’ll need is courage. It takes courage to be a self-starter and be self-responsible.

With courage, you can walk new paths and develop new skills. If you wish to stand out from the crowd, you need to be courageous enough to put in the extra effort when  others don't. Make financial freedom your number one goal, and you will find that every other voice trying to discourage you is muted.

Remember, it takes courage to build wealth. It has little to do with money and more with wanting to achieve a goal, so much that you make it your top priority.

9. Actively boost your income   

Don’t be comfortable with a basic salary. Even the average millionaire has more than one stream of income. If you want to begin building wealth in your life and for future generations, then it is time to place a higher value on wealth creation in your life and get organized with your money.

I mean, why would you be given more money to manage if you can’t manage what you’ve got? If we were to look into your wallet or purse, would you say the bills in there are well organized? If not, then you need to first plan and work with what you have as you you’re your horizons to more ventures.  

Look into avenues that can generate some  passive income since a hands-on approach could lead to burnout. You could also learn new skills and work on building wealth around that in your spare time.

10. Be disciplined   

I can’t stress this enough. Wealth is the  cumulative result of many little things added together and compounded over a lifetime.  Your daily habits will either make you or break you if you want to be successful.

Most of us are victims of the number one success killer: procrastination. You must begin the right habits today without delay, and this requires discipline. With discipline, you overcome procrastination by starting today and persisting tomorrow.

The harsh truth is that there’s no substitute for action. You either do it, or you don’t. What you’ll be left with are simply excuses. Don’t let anyone fool you, wealth happens because you do what it takes to make it happen.

Well folks, thank you so much for reading. With that said,  have a great day, and see you in the next one.

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