How to build wealth ?

The idea to build and create wealth, is a common purpose that people will aim to aspire to. But unfortunately most people don’t achieve it !

Why ? – because it takes discipline, time and a lot of effort. It may appear daunting and out of the reach for the vast majority, so we cannot envisage ourselves every achieving that level of money.

Well the good is you can achieve wealth or so called financial freedom. If you create a plan, think long term and learn about the magic of compounding.

Avoid so-called get rich quick schemes that will only make other people rich. Plus remember to invest your money into a tax-free investment wrapper such as an ISA or Pension. So your funds will work harder for you over the course of time.

So what steps do we need to take to achieve wealth ?

1) Learn to take an interest in your own financial situation.

Nobody else should be responsible for your financial future. Or care about your money or finances than you. (Thats’s why we call it personal finance) So make a conscious decision to get involved with your finances.

Learn about how savings and investments and how financial products work. There is so much financial information out there, such as company websites, trading platforms, Youtube videos, blogs (such as this one), newspapers, investing books, podcasts etc. So there can be no excuse about learning as the products and information is freely readably available to be accessed.

The world or subject of personal finance and investing may appear daunting at first. The industry has always put out that impression as it was only for the rich or the elite. However though, through the growth of the internet, the world of investing has never been simpler.

I was never taught in school or college about savings, mortgages, debts, investing etc. It’s something that you have to learn and teach yourself.

I wish it was taught to individuals as part of the school curriculum, or by an employer through roadshows, annual events but they seem to neglect this subject.

On a personal level, through my daily job role. I offer people guidance about how they can access their Defined Contributions pensions from the age of 55 onwards. But it amazes me the number of so called successful people in terms of their vocation or careers, seem to know very little about how pensions work. What on earth is annuity, drawdown, lump sums etc, or what are the tax implications when I do access a pension fund. Most people will just look at an annual statement and see a headline figure for the pot value.

2) Create vision and goals, for both short, medium and long term

Where are you on the road moving forwards, think of now as your starting point. Where would you like to end up in say 10 or 20 years time.

A simple example is buying a plane ticket, you simply don’t just turn up at the airport with no idea of your next destination. So set a plan of which direction you want to be heading in.

There will be ups and downs and unexpected bumps along the road. But as you progress ahead towards achieving your targets it will be both rewarding and worthwhile in time.

Break it down into bitesize chunks, so small goals such as the next 6 to 12 months. Move on to medium goals say the next 3 to 5 years. Consider your long term objectives say form 10 years onwards. In future you may wish to be mortgage free at a set date or age. What age would you like to able to retire or be able to reduce your working hours worked. What are setting you the children for university or a deposit for their first home, (thanks to the bank of mum and dad).

So find your reasons why you want to achieve wealth, and more importantly make them specific to you and your immediate family. Don’t feel envious of others, or people that you work alongside. Anybody can give the impression of looking rich, but it could be hidden by a mountain of debt.

I personally set my annual goals for the following year, over the Christmas period when work is quiet.

I set values for how much I want my assets to be be, and what sort of passive income I want to earn that following year.

I will then record figures at the end of month during the year to see if I am on track.

3) Pay off any excessive debt

Before you even consider the idea of saving and investing, clear off any outstanding excess debts, such as car or bank loan, credit cards etc. You will be paying excessive fees in interest to surface that loan or debt. At present the average credit card interest rate is nearly 30% in the UK.

By paying such interest your money isn’t working for you, it’s only making that bank or financial institution richer, not you.

Now there is what we call good debt and bad debt, such as a mortgage to cover a property purchase as we all need somewhere to live. Normally the debt is rescued and cleared over time and the property will increase in value.

You can clear debt off via the avalanche or snowball methods. But once you are debt free you can make that spare money work for you to improve your financial situation.

4) Learn to automate your savings and become consistent

Learn to pay yourself 1st, whether it’s on your payday at the end of each month, or the start of each month when you have some free cash.

I personally set up my direct debits to my ISA and SIPP on the 1st of each month. So it goes out of my account like clockwork with very little effort. I will then invest the funds accordingly into these accounts. I can just with off, knowing that my investments are being added to on a regular basis. Thereby hopefully increasing my wealth on a regular basis, so I can meet my annual targets.

On a side issue, I will also buy a 1oz silver coin each pay day, as it will even out the price that I pay over the course of time. But by doing this this action, I am paying myself first, before I could waste the income unnecessarily on items I don’t need.

Once you have become disciplined and focused you will soon notice that you don’t miss this money. It may be that you start out initially with a small amount say £ 25 or £ 50 each month. But increase it over time such as the start of each year, or if you revive an annual pay increase from your employer.

5) Learn to create more than 1 source of income.

Try not to be become reliant on having only 1 source of income. Way back into 2016, my then long time employer of over 20 years, offered me and my colleagues a proposal changing our pay, terms and conditions, stopping overtime payments, bank holiday payments. It could and would have had a drastic effect of my earning potential in future, if I was to stay with that employer. I made an application to apply for voluntary redundancy as I didn’t feel valued by that employer. The process took nearly 3 years to complete, before I left that employer. But during that time I created a plan of action, to have multiple steams of income. So no employer will ever put me in that position again.

So now in 2024, at the age of 53, I am considered financially free in that I can retire tomorrow if I wish. I could to work a job on my terms at present as I enjoy that job role and enjoy helping people about how to access certain financial products.

At present, I receive the following sources of income:

• BTL income,
• tax-free dividends via my ISA, and trading account
• Tax free dividends from my SIPP account
• peer to peer investment interest
• Building society bank interest
• Odd win from premium bonds
• Returns from holding cryptocurrencies, such as staking and de-fi earnings

I live on my salary alone, and all the other sources of income that I receive are re-invested automatically to grow my level of wealth.

Learn about the power of passive income, as you can earn money day and night or at weekends. Whereas if you are only working a 9 to 5 job, your employer will only pay your during those hours worked. So somebody else is controlling what income you are being paid and you are limiting that level of income as you are trading time for money.

6) Learn to reduce your level of expenses

To increase your wealth you are going to ideally create a business, side hustle, win the lottery or inherit some kind of legacy or windfall. Most people won’t achieve wealth from working a 9 to 5 job.

In the short term when starting out, the simpliest thing you can do is increase your earning potential or reduce your outgoings or living expenses.

Try and create a simple budget whereby starting out, say for 3 to 6 months, to track with your money goes. You will be amazes by where your income actually goes. It may go on socialising, clothes, eating out, holidays, commuting, car loans and bad debts.

I’m not saying that you completely change your lifestyle from day 1 of your new plan, or become a hermit and avoid any sort of social interaction with friends, family or work colleagues. But you may wish to limit such extravagances or at least set a budget for each item of expenditure.

If you carry on doing the same or are living pay check to pay check, you will be in exactly the same position in 12 months time. If you can on doing the same things with your money. You may even be in a worse position if costs increase by inflation and your income doesn’t.

Is your current level of spending creating undue stress and financial worry, imagine if that stress was taken away. So does your current financial scenario or situation need addressing.

7) Learn to associate with positive or successful like minded people

To become rich or wealthy, ideally you need to learn from other people that have already done it and know what pitfalls to avoid. They will have achieved financial success and the lifestyle that you may wish to aspire to.

The internet is full of so called people promoting instant fane and riches, so due your due diligence and background checks before associating with new people. Anybody can give the impression that they are successful with good pictures, false promises, fake reviews. Ask yourself why can someone so young drive that nice sports car, or why are posting pictures every month of being on holiday in a different location each time. Are they giving a false impression, are they saddled with debts, how are they financing that lavish lifestyle.

The road to achieve wealth should be considered safe and boring, it’s not a get rich quick scheme. It’s surprising to know that a lot of pole who are considered wealthy, may not initially appear so as they don’t flaunt it. They may have a modest house that mortgage free and paid for, they may drive an old car but it’s reliable and suits their needs or lifestyle.

I’m not stating that you start staking successful or wealthy individuals. But you can associate with them through social networking, online seminars, following them on Youtube etc. So create a circle of financially competent people that have the same aspirations and dreams as you. People that have already made those mistakes and learnt from them along their journey. So you can learn from them and gain ideas, tips and knowledge to improve your financial situation. Whereby you will ultimately reach your financial goals and dreams that are personal to you.

8) Invest in yourself

Try and improve your skillset, learn new courses such as digital products, there are lots of free online course available. Or what about studying in your evening or part time, to gain new qualifications to improve your current job position or gain a better and higher paid position in a new job role with a new employer.

Lots of companies will even sponsor or support you whilst in employment, as long as it’s relevant to you role. So take advantage of it in the short time to improve your financial position.

I personally listen to financial podcasts each Sunday morning when it’s quiet. I also read investment books on a regular basis. My platforms provider http://www.ajbell.co.uk will also publish weekly newsletters, videos, investment articles on a regular basis so I can improve my financial knowledge asnd stay updated with recent investment topics. Their are the platforms or financial institutions around, a great one when starting out could be http://www.moneyhelper.org.uk which is run by the Money & Pensions Service and is free and impartial.

There can be no greater investment than investing in yourself !

9) Take a risk !

Get out of your comfort zone, you will never become rich working for somebody else doing a 9 to 5 job. Unless you’re highly skilled, or hold a highly paid position within that establishment. It’s beyond the reach of most people.

To become rich you need to take some level of risk and you will be rewarded in the long run. Ok, you will make mistakes along the way when starting out. But you will learn from those mistakes and you will get better and more competent at doing the correct things in future. These actions and events will make you a better person in future and you will become more successful.

But don’t make daft, drastic decisions or actions when starting out, as it could have a detrimental effect of your current financial position. Or it could affect family life or mental health and wellbeing.

However the saying stated the greater the risk the greater the reward, you have to speculate to accumulate. Also, learn to make some sacrifices, it may be that you have to give up some or your spare time in the evenings or weekends to improve your financial position. But learn to live that way today, so you can ice in a different way in future, unlike the vast majority of people. It may only be for a short period of time, buy you be rewarded in later years in leaps and bounds.

10) Finally think long term in a tax-efficient manner

Learn to put all your investments within a tax-free investment wrapper such as an ISA or a Pension. At present you can invest £ 20,000 into an ISA during each tax year, most people will never use all their allowance, but if you don’t use it you will lose it.

It means that any investment growth you receive or profits you make you will be free from capital gains tax. Which is only £ 3,000 per annum as per 2024/25 tax year. But any dividends you receive you receive are free from dividend tax. At present if you receive dividends in excess of £ 500 per annum again as per 2024/25 tax year, you will have to pay tax charge on that amount.

So not only do it reduce the payment of an additional taxes, it also reduces the need to complete self-assessment forms of notify GOV.uk or HMRC though completing unnecessary paperwork. So learn to keep your investments in a simplified tax free wrapper. It will be vital in later years as your portfolio grows through the power of compounding.

Think about the power of compounding (the so called 8th wonder of the world), your wealth may start off relatively small. I that in may increase gradually by a small amount int he first few years, but in the later years if done correctly is will vastly increase like a snowball rolling down a hill.

It’s not to boast or brag but my ISA and Sipp are well over 6 figures (£ 100,000+) through the notion of investing on a regular basis for many years. With the aim of achieving an annual return of 10% each annum.

If you look at any figures for past performance over the long period the S&P 500 have returned around 8% year on year since inception many years ago. Which is far batter that holding cash in a back or building account which receives very little return.

Remember !

If you found this blog post and the information useful, please feel free to check out my other posts on https://moneyminted.co.uk which covers pensions, savings, recommended investing books. So you too can improve your financial knowledge and ultimately reach your investing and financial goals.