What are the Principles of Building wealth?
Some of the basic principles of building wealth include investing in skills and education, saving money, and protecting your assets.Building Wealth for financial security requires you to have the right information, plan well, and make the right choice.
Success in building wealth therefore requires you to put in more time, effort, and discipline.
Beware of too-good-to-be true opportunities. Resist them and run away from them like a plague.
They are usually hot air.
Moreover, they can give you the exact opposite of your intentions towards achieving your financial goal.
As a result of get-rich-quick schemes, many people have been denied their financial freedom.
“The secret to wealth is simple: find a way to do more for others than anyone else does. Become more valuable. Do more. Give more. Be more. Serve more.” ― Tony Robbins
In this article, we shall be looking at the principles of building wealth by offering a guide to achieving financial success.
But first and foremost…
What Does The Bible Say About Building Wealth?
Matthew 25:14–30; The Parable of Talents (New International Version).
“Again it will be like a man going on a journey, who called his servants and entrusted his property to them. To one he gave five talents of money, to another two talents, and to another one talent, each according to his ability…
Kindly note how the master delegated the management of his money to the servants.
To one, he gives a large amount of money, to the second, he gives a fair amount; and to the third, he entrusts with just one unit.
The two see it wise to trade with the money to earn more for their master, while the third one decides to hide the money, hence no meaningful return.
My point is…
Our gifts from God are different, as is our financial status.
God expects you to employ those gifts and abilities He has entrusted you with for His purpose, and that includes building wealth that is a blessing to others too.
The 7 Principles of Building Wealth
a)Understand the language of wealth.
So, how do you define your wealth?
Let’s see…
You consider yourself wealthy because you are never late in paying your bills, you live in a leafy suburb neighborhood, and you drive an expensive car and probably traveled around the world.
Mmmmh, not bad but…
For financial wealth, let’s introduce these terms;
- Assets
- Liabilities
- Net worth
Your Assets-Your Liabilities=Your Net Worth.
That savings account, a home, and land that you possess increase in value, and they provide a return.
We refer to them as Assets.
Liability on the other hand refers to the possessions that are not wealth creating.
Your mortgage loans, credit cards and your car that has a depreciating value fall in this category.
Net worth is the difference between what you own and what you owe.
b) Principles of Building Wealth #2:Have a Source of Income
Your money can come from what you do for a living (active income) or from your investments (passive income).
To earn more money so as to save and invest, explore some of these ways:
- Negotiating for a pay raise if employed
- Starting aside hustle as a principle of building wealth.
- Make a habit of investing a portion of your budget
- Cut your expenses by going with what you need only.
c) Principles of Building Wealth #3:Set Your Financial Goals
Defining your financial goals is a good starting point.
To apply the principles of building wealth,have them in both the short and long term.
Specify your goals in terms of reality, plan, and time frame, and always create room for change.
You never know what the future holds.
Develop a plan by;
- Increasing your income through career advancement or having a business as a side hustle.
- Have assets like land that appreciate over time.
- Budget and be a doer by making sure that you stick to it.
A good budget allows you to know where your money goes so as to avoid unnecessary purchases, thus allowing you to save and invest to build your wealth.
d) Saving and Investing as a Principle of Building Wealth
“Never spend your money before you have earned it.” —Thomas Jefferson
Open a savings account either in a bank or Sacco so as to receive money from your paycheck and also increase your earnings through compound interest.
What is investment?
Investment is what you acquire for future income or benefit.
For example, if you choose stock markets, your investment will increase by generating income through dividend payments and selling the appreciated stock.
When it comes to investing, diversification is a worthy thought.
Have your money spread across different investments so that whenever one is not performing, you can always cling to the other one.
Remember to put aside some money to meet your needs on a rainy day before you start to invest.
So, where can you invest?
The potential returns on investments depend on the amount of risk involved.
The higher the risk of losing money, the higher the returns, and vice versa.
Money in your savings account is safe because it has insurance from the Kenya Depositors’ Insurance Corporation.
Even if your bank collapses, you will still get your money, thus the low return.
Stocks, on the other hand, have no insurance, and you may lose your money when they don’t perform, hence the higher return.
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for ten years.” —Warren Buffett
Money put in a savings account fetches low returns since the credits are at low interest rates, and with time, your money tends to lose purchasing power when hit by inflation.
In Kenya, You May Consider investing in:
1). Treasury Bills
These are secure, short term investments that offer you returns after a relatively short commitment of funds.
They auction weekly with maturity options of 91 days, 182 days, and 364 days.
2).Treasury Bonds
Are secure, medium- to long term investments that typically offer you interest payments every six months throughout the bond’s maturity.
They auction on a monthly basis, and most are at fixed rates, thus providing a long term source of income. (Source: Central Bank of Kenya)
3). Money Market Funds.
Another name is Money Market Mutual Funds.
For investors, they offer the element of a guaranteed return of high liquidity with a very low amount of risk.
You can get this from a commercial bank, insurance company, or any other company listed by the Capital Market Authority.
4). Mutual Funds.
Allows investors to pool money with other investors.
A team of investment professionals then manages the funds in accordance with a clearly defined investment mandate.
Other Investments include:
- Starting and owning a business.All you need here is a plan, enough savings to serve the purpose, the know-how, and, of course, your entrepreneurial spirit.
- Develop your piece of land by putting up income generating assets like commercial buildings and rental apartments.
e) Build your credit and manage your debts.
A good credit score boosts your ability to access loans to help build your wealth.
A credit report gives a rating on a credit score, which one can always improve to better suit their current financial needs.
To improve your credit score, pay your bills and premiums on time, and also consider consolidating your loan accounts.
You can obtain your report from any licensed Credit Reference Bureau. In Kenya, we have Transunion, Metropol, and Creditinfo.
The first step to managing your debt is to sum up all the debts and come up with a plan.
You can then work out your debt money from your budget and pay your bills and debts based on priority.
Start paying from the smallest debt. Put aside some money for emergency so that you don’t have to borrow for the unexpected.
f)Protecting Assets as a Principle of Building Wealth
It’s worth to have in place the best asset protection strategies that suit your financial situation.
There are a range of insurance products that can cover property from various liabilities, so it is important to subscribe to the right policy so as to serve the purpose.
Form a business entity with limited liability to prevent creditors from accessing your property.
Transfer liquid assets to an irrevocable trust under the supervision of a trustee .
Even though you are no longer the owner legally, you can still have direct control through the trustee.
You can use both offshore asset protection trusts and domestic asset protection trusts.
g) Minimizing Tax Impact as a Principle of Building Wealth
Make sure your pension is under a registered retirement benefit scheme so as to enjoy a monthly tax relief of up to KSh. 20, 000 and have savings for your retirement.
Life insurance cover gives a 15% tax relief on premiums up to a maximum of Ksh. 5,000 per month.
If you are abled differently and you are registered with the National Council of Persons Living with Disability, your taxable income of up to Ksh. 150,000 per month is exempt from tax.
All you need to do is get a tax exemption certificate from the Kenya Revenue Authority.
Conclusion: Master the Principles of Building Wealth for Financial Success
Proverbs 13/22(NIV)
“A good man leaves an inheritance for his children’s children,
But a sinner’s wealth is stored up for the righteous”.
To build and maintain your wealth over time, it therefore requires you to put in more time, effort, and discipline.
Starting small, increasing your income, and saving form part of the principles of building wealth.
The principles of building wealth therefore debunk the myth of getting rich quick.
Like every journey there will be obstacles.
But with a growth mindset you are able to conquer your setbacks and achieve your goal of financial security.
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