The word wealthy means different things to different people. For some, wealth is all about money and an accumulation of assets that can be valued in monetary terms. That’s financial wealth (money). But there’s also time wealth (freedom), social wealth (status) and physical wealth (health).
We’re going to focus on financial wealth here. The definition of financial wealth is also different for different people. For some, it’s about having millions in the bank. For others, it’s having enough so they don’t need to worry about money. It’s a very personal thing. And up to you to decide what being financially wealthy means for you.
It could mean having a cottage by the sea. With enough money to pay your bills and have a holiday every year. It could mean having a holiday home that you can visit whenever you want. It could mean having enough money in the bank that you never have to work again.
After all, it’s your life. And you’re accumulating wealth so that you can live the life you want. The best way to accumulate wealth is to make a plan. A plan that allows you to envision the life you want. And will keep you focused on achieving it.
You need to plan what you want and when you want it. If you want to buy a cottage in five years’ time, then calculate what you need to do to achieve that. If you’ll need a deposit of £20,000, then work backwards from then. And decide how you’ll save the money. You could decide to save £4,000 each year. If you’re not currently earning enough to save £4,000 each year, then you’ll have to work on making more money or spending less. Having a plan will focus you and help you achieve your goal.
If you want to build long-term wealth over time, then you have two main options. The first is to run and grow your own business. The second is to invest and have your investments do well over time. Many people do both.
Having your own business is a great way to build wealth. Most of the wealthiest people in the world run their own businesses. That way, you’re creating wealth for yourself and not for the person you work for. If you don’t have your own business, then it might be something you want to think about starting.
If you’re starting out investing, then make sure your financial house is in order first. Pay off any debt, build an emergency fund and reduce your expenses. That way you’ll have money available to invest each month.
There are many ways to invest your money. Some personal finance experts focus on equities (stocks and shares). I believe it’s better to diversify across different asset classes and geographies. It’s the ‘don’t put all your eggs in one basket’ approach.
The types of assets you can invest in include equities, bonds, commodities (e.g. gold, silver), property, art, cars, wine, watches and currencies (including cryptocurrencies). It’s up to you to decide which asset classes you want to invest in and how much. This will be based on your views on how that asset class will perform in the future.
You need to be aware that investing is not without risk. Until recently, many people investing in equities had done really well. Especially over the last 10 years. But this was during a long bull (increasing) market. So, it would have been difficult to not do well. Then coronavirus hit and the value of a lot of people’s portfolios has dropped.
Markets can be volatile. That’s why investing is considered a long-term game. People talk about ‘time in the market not timing the market’. But it can be scary to invest during uncertain times. As it requires an understanding of the economy and how things in the economy might play out. And even economists get it wrong.
It might be better to take a break from investing if you have concerns. And stay in cash for a bit. Then go back in when things improve. But this could have tax implications. So, you’ll have to weigh up the pros and cons. And do what’s right for you.
And be aware that there are usually lots of opportunities during a recession. It’s about waiting for the right time. And having the cash available to invest. Even Warren Buffet is holding a large position in cash right now. In the past, this has been a time when fortunes have been made. I’m watching. And waiting. I’ll let you know how I fare.