Five Fundamental Rules for Wealth Creation.

 

“Rich is measured in dollars. Wealth is measured in time…How long can you survive without working is how wealthy you are. Being wealthy is more important than being rich” – Robert Kiyosaki

DISCLAIMER: I am NOT a certified financial adviser nor do I have qualifications in accounting. If you need professional help with your finances, consult with a certified professional in this regard.

Wealth is about striking a harmonious balance in all the five important aspects of your life, such as Finances, Health, Family, Career, and Relationships. Wealthy people are long-term thinkers and are not interested in get-rich-quick schemes.

Wealth = Wisdom (Financially) + Health (Mentally, Spiritually and Physical).

When they are young and naïve, people tend to compromise their health for money, but when they are old and wise, they are willing to sacrifice all their capital just for an extra hour of good health. 

Don’t let this be you. Think like a wealthy maestro.  As we begin a new year, let me posit the following five fundamental rules of wealth creation:

1.    Start with Why, and set your Goals Accordingly

In your quest for wealth creation, the first question you need to ask yourself is “Why is it important for me to be wealthy?”  Whatever your reason may be, remember, wealth is not about having enough money to buy whatever you want but being in control of your finances instead.

Having a strong and deep reason (Why) will enable you to bear almost any method needed in your journey to greater prosperity. In many cases, a deep reason for pursuing any endeavor in life is tied to a persons’ purpose or calling.

What is your goal and what does it look like? For instance, my personal financial goal is to become a millionaire by December 2026. And I am going to get there through a diversified investment portfolio and other business ventures. Financial goals should be Specific, Measurable, Attainable, Realistic and Time-bound (S.M.A.R.T).

What does your financial goal mean to you? I personally do NOT just want to make a living on this earth but make a difference too. Reaching my financial goal will enable me to give back to my community and contribute towards its development.

Getting wealthy means being true and honest with yourself. All your decisions in as far as finances are concerned, will be informed and guided by this goal. You constantly need to evaluate your daily choices against your “why”.

I have set a rule to ask myself before I buy any item whether that item will take me closer to my goal (one million rand by end of 2026), if the answer is no, then I’m not buying it. Wealth creation is a deliberate and purposeful process that requires patience, wisdom and self-discipline.

2.    Plan and Manage your Finances like a Pro

Financial planning and management is about knowing where you are first before you start. And when you start, you begin with the end in mind (Target/Goal).  The first question is, what is your net worth? If you want to know where you are going, you must know where you are. It is ascertaining your current position that will enable you to better plan for your goal.

Since my goal is to make my first million by December 2026, my plan is to start investing with only R500 in January 2021 in stocks, bonds and money markets. The plan is to start small for a year to get a hang of things, then invest more as I get more knowledge and experience with investing.

One year is enough to gain sufficient experience in various types of investments if you are committed and determined to learn how they work.

3.    Divide your Budget into five baskets

The five-basket budget system means you divide your salary and/or earnings into five categories according to your living expenses, needs, education, and entertainment.

The first letter of each of these five baskets form an acronym that is pronounced as snail. Snails are creatures which are not hasty by nature, but they are healthy and can live for a very long time (Up to 25 years or more).

That is the attitude you need towards your budget for sustainable wealth creation. Long term thinking with a healthy mind-set which is not influenced by too much noise in the world.

The acronym is SNELE. 

a)   S = Saving Basket (10%) – This is the most important aspect of wealth creation. Pay yourself first with at least 10% as soon as you receive your salary by depositing it automatically into your savings account. 

b) N = Necessity Basket (60%) – Your necessities include all your monthly living expenses, such as groceries, cosmetics, rent, bills, and debit orders.

c)  E = Emergency Basket (10%) – This 10% is the money which is reserved for rainy days. Say you get sick and you want to go to the doctor or any similar emergency that have to do with your health or security. These includes other emergencies in your house like geyser burst, toilet or roof leaks, minor renovations, etc.  

d) L = Learning Basket (10%) – Wealth creation requires wisdom. Wisdom comes from acquiring knowledge and applying that knowledge in assets or businesses that help you achieve your financial prosperity. Basically, this basket is for books, seminars or courses that will help you expand your knowledge for wealth creation.

e) E = Entertainment Basket (10%) – Wealth creations should be a fun and rewarding process. Along the way you will need to reward yourself for being patient and disciplined with your finances. Buy yourself that vintage wine to celebrate yourself for taking responsibility with your finances.      

4.    Live within or below your means

It is no coincidence that this rule follows the five-basket budget rule. It was deliberate with the aim of teaching you how to stick with your budget. The bottom line is that; you must control your spending impulses.

That is the key to live within or below your means; by exercising self-discipline. Remember your goal (Rule number one) and stay true to yourself.

5.    Money begets money

It takes an idea to make money, but it takes money to create wealth. Wealth is acquired over a long-term and therefore, the mere saving of money does not suffice. You need to create new streams of income either through a side business, or any other skill you can cultivate in order to make yourself an extra lot.

For aspiring investors like myself, strategic and wise investment is very important. But nothing beat what is coming-in in the first place (your salary). Don’t quit your job, rather replace it with another if you don’t like it.

For a sustainable wealth creation, familiarize yourself with the concept of compound interest. Utilize your Learning basket to educate yourself on this because it is absolutely crucial.  Compound interest is like a fertilizer that make your crop greener, bigger and healthier.

Diversify your investments portfolio and manage your accounts effectively. Diversity is the key that unlocks prosperity and protect your wealth.

Forget about being rich. Strive to be wealthy. Wealth is not only about money, it’s mostly about having options, choices and control over your finances instead of being controlled by them.

For instance, if you own a million-dollar company but cannot interrupt your schedule to have a random coffee date with your partner or child, you are not in control. You may be rich, but you are not wealthy.