The path to becoming a wealthy individual doesn’t just happen overnight. But there are definitely proven ways that can help you get rich. Here are six basic things that anyone can start doing to kick-start your path to becoming a wealthy individual.
1. Buy experiences, not chase materialism
From an economic standpoint, material things appear to provide a longer duration of function than experiences. Yet, from a scientific standpoint, experience provides greater joy than things. It turns out that experiences help to shape you into who you are today and becomes a part of your identity. Material things, on the other hand, remain separate from you.
Unless you avoid falling to the myth that everyone should chase material wants, you will end up splurging your wealth on pursuing material wants. Even then, you find that you are still unable to find happiness as advertisements have promised. So, instead of chasing material wants, change your mindset and think about pursuing experiences.
2. Build more sources of income
One thing that the rich understands more than those who aren’t is that a single source of income isn’t enough. Ideally, you should have more than one source of income and it should be a passive source of income. Logically, it also makes sense. Having more sources of income gives you the ability to pay off your debt quicker, put more money into your savings, and enjoy a better lifestyle.
If you already have more than one source of income, the next level is to make those income passive. Think about it this way. If you only have 24 hours a day, there is only so much you can make from a regular salary. After all, you are paid for the work that you have done by the hour. But alternative sources of income (especially passive income) doesn’t need to be paid by the hour. This means that the upside to your earning potential is not limited by how many hours you have in a day.
3. Cultivate the discipline of saving
Wealth is governed by a very simple equation where “Wealth = Income – Expenditure.” Some people think that you become rich by earning loads of income. Well, that might be true, but only to a certain extent. The skill to cultivate and instil the discipline of saving in yourself is also very important. If you lack the ability to save, you can forget about becoming rich.
There are many ways and a variety of avenues for you to save. For example, you can save by eating out less often. Alternatively, you can also save by making smarter decisions on your big ticket items like home appliances. Not to mention, you can also save by using promo codes and apps that help you to save on dining, shopping, and travelling. If you are determined to become a hardcore saver, you definitely want to join some of these Facebook groups to hunt for deals, tips, and bargains. Leveraging on credit cards’ cashback and rewards feature is also a great and easy way to start your saving journey.
4. Don’t just save, investing is important too
Saving is just one aspect of financial planning that the rich do well. The other aspect is to build a passive source of income. In particular, mastering the art of investing is equally important, if not more important. Based on a study by the Spectrem Group, millionaires invest 44 percent of their assets in shares. This is typically how the rich get richer, i.e. by investing. Investing allows you to grow your money steadily over the long term to help you grow your wealth to meet your long-term financial goals.
A good way to get started with investing is to start a regular savings plan. It lets you get started with investing without a huge capital, to begin with. All you need is a saving of S$100 to begin your investment journey.
5. Protecting your downside is important
If you think that the rich only think about how to increase their wealth, then you are wrong. Interestingly, an important skill that the rich possess is the ability to protect their downside through the use of insurance. For example, they know that falling sick is part and parcel of life. But the cost of treatment can be an uncertain cost that can potentially lead to a hole in your pocket. Thus, to limit the downside, the rich make sure that they get the right health insurance to protect themselves, both medically and financially.
6. Use debt to your advantage
Debts are evil financial tools that the rich avoid. Well, that’s not quite the truth. Another skill that the rich have is the ability to use debt to their advantage. While it is possible to be completely debt-free, it is not a smart decision to make.
Debt can be classified into two types: good debt and bad debt. Whenever you take out a loan, you need to determine whether it is a good or bad debt. One thing that the rich does well is to take only loans that are classified as good debt. Good debt is typically an investment that will grow in value or generate long-term income.
For example, taking a loan to finance your home purchase is a good type of debt. This is because the value of your home will appreciate in the long run. The appreciation in your home’s value will beat the interest rate that you are paying to the bank. (P.S. That is only if you are smart in picking the right home loan deals with the best interest rate).
These six things may sound simple, but you’ll be surprised how many of us get stuck in the rat race even though we have the opportunity to break free by learning and implementing these principles.
This article was originally published on bankbazaar.sg and re-published with permission.