Four Principles of Wealth Building

By: Natalie Aranda
Submitted: 2007-01-17 16:17:29
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The strategies to build wealth are different to an array of people. For some, real estate investments provide a steady stream of cash inflows and tax advantages. To others, stock market index funds grow their nest eggs at more than 10% a year for 20 years or more. Wealth also means many different things to different investors. For some, it means putting every one of their children through college. To others, wealth simply means fancy cars, huge mansions, and the ability to relax all day. Despite what you think wealth means and what strategies you use to build wealth there’re really four principles of wealth building: 1) make more, 2) spend less, 3) start early and 4) manage risks.

Make More

The first and utmost important thing for wealth building is that you have to have a big enough nest egg to grow your money no matter what strategies you use - real estate investing or stock market investment. There’re basically two ways to make more money by working (not investing) - from your regular 9-5 job and from a secondary supplemental income. Besides education and working experience, the industry you’re sets the range on how much you’ll make from the job. People fresh out of the college with a computer science degree will likely start at $50,000 a year, which may take 5-10 years to reach that earning power in other industry. If you work for love (you really love your job) not for money, you’ll need the skills that you can earn good money out of your work.

Spend Less

Unless you have a budget and control your spending, you won’t be able to build wealth. Too often those who make a million a year end up with another million in debt ‘cause he spend two millions a year. Those who make only $50,000 a year could end up with $10,000 richer if he spend only $40,000 a year.

Start Early

The power of compound interest is amazing. If your ancestors had put one dollar away for you 200 hundred years ago and that one dollar has earned 10% every year since then, the net worth of that one dollar is $190,000,000 today - an astonishing $190 million dollars. If you had invested $300 a month in S&P 500 index for past 30 years, the net value of your total investment will make you a millionaire today. The S&P 500 index represents over 70% of the value of the U.S. equity market. The annualized return of S&P 500 index is about 11.16% in past 30 years. If the investment period was only 20 years (not 30 years), your net worth is about one third of a million.

Manage Risks

Years of saving could be wiped out by one single unfortunate event in life if you hadn’t had proper health insurance, property insurance and life insurance.

If you are unsure of where to start and feel like you just aren’t cut out for wealth building, there are programs that will instruct you further. Wealth building seminars coach people how to earn more, save their money and live on a budget. What you’ll get out of those respected seminars are far more the strategies and the techniques they teach, you’ll often meet people who’ll share the experience and make new friends who have the similar goals. You’ll be encouraged and inspired.

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