There it is!
Take those four steps, and we’re on the way to building wealth. Yet, why is it that building wealth isn’t quite that simple. Not saying it’s impossible, as many of us are working on it every day. But the basic framework shouldn’t be that complicated to understand.
I see this as step one. We can’t save or invest, or have anything to protect, if we don’t make money in the first place.
To me, this should be the priority for most of us. Admittedly, I do enjoy saving money, and finding opportunities to do so. And yes, I write about it quite often, since it’s important and has a place at the table.
But we have to first make money, and make sure that we keep that income stream intact. Is this something you’re good at, or is not enough income truly an issue? I’d say that doing the best we can at our work, keeping our eyes open for good opportunities, being marketable, and networking are all essential to pulling in money. Additionally, being goal-oriented with well-planned aspirations gives us a target.
Do you feel you’re doing all you can here?
So let’s say we’re truly making good use of our talents and skills, and are generating a decent income. Does this mean that we have more money to afford an upgraded lifestyle, or does it mean that we have more money to save for our needs? I go with the latter.
How about you?
So while making money in the first place is a primary focus, as cash flow is vital, we need to save in order for it to be more than just paying current bills. Our savings can be used to pay our future expenses, and can even throw off cash flow to provide with income if we aren’t working.
Just saving money isn’t enough to build a lot of wealth, unless the amounts are truly exceptional in nature. Inflation erodes purchasing power, so we need to make sure that we earn a good rate of return. Of course, balancing returns with risk is important to consider. But every percentage point of rate of return can make a big difference. This also comes into play with investing or fund fees, in that reducing them can help us build wealth too (all other things being equal).
If we make, save, and invest our money conscientiously, we can build wealth. If we don’t protect it, we can lose it.
It’s kind of like a football team marching down the field, about to score a touchdown, then being careless and dropping the ball at the one yard line. If they don’t protect the football, all that success to that point could go to waste. Even worse, that fumble could be catastrophic and might be returned for a touchdown by the other team!
This is where we need to make sure we have the right insurance. Whether home, car, liability, or other – we have to protect ourselves with insurance. Also, this means we need to make the right moves with respect to estate planning and other big decisions.
Really, carelessness in many areas of life could reduce wealth. This might even include health, because lack of it could impact our ability to make money while concurrently draining us of money at the same time.
Avoiding the big mistakes is a part of building, managing, and keeping wealth.
Bottom Line: building wealth involves a series of logical steps and actions that aren’t super complicated. While often easier said than done, the process involves basics: make, save, invest, and protect money. Making sure that we pay the proper attention to each of the four areas, and truly put our best foot forward in each of them, puts the odds in our favor. A little bit of good luck doesn’t hurt either!
My Questions for You
Do you see things in this basic framework as well?
Do you pay each of these areas the proper attention, or do you need to improve on any of them?
Which area is your strong suit?