Personal-Finance

The only way to generate wealth

2019-07-28 14:39

If it is too late for you to marry into money, you have accepted the fact that a one in almost 14 million chance means you are probably not going to win the lottery, and you’re not keen on any criminal activities, then there is only one sure-fire way left that you can use to generate wealth.

So here, in all its simplicity, is the secret to generating wealth: Spend less than what you earn, invest the difference, and wait.

And that is all there is to it. It is so simple in theory, but the problem is implementing it.

Let’s break down the wealth formula into each of its components so you can see how it would play out in practice, and which factors you can influence.

SPEND LESS

This is by far the single most important thing you can do on your way to generating wealth. Spending less is an extremely sharp double-edged sword that will help you slash your way to your financial goals.

Firstly, spending less means that there is more money available to save and invest each month.

But it also means that you will be able to achieve financial freedom (arguably the ultimate form of wealth) much sooner.

Because your monthly expenses are lower, it means the amount of money you need to be financially free is lower. So by spending less you are able to put more money away towards a much lower investment target.

Spending less however, is the part that stops most people from generating wealth.

This usually means some sacrifice and possibly relooking some of your big decisions, such as where you live or what car you drive – these can have a massive influence on your monthly expenses.

What you are willing to sacrifice will depend on where financial freedom sits on your list of priorities.

WHAT YOU EARN

This is a slighter harder one to have an influence on as you are pretty much capped by your skill set and qualification.

Improving your skill set and putting in the extra effort at your day job may help and taking on a side hustle can certainly drive more income, but if your spending isn’t under control this will be lost into the black hole of expenses.

INVEST THE DIFFERENCE

This is important, and everyone has their own views on what to invest in. However, what is most important is that you invest in something that is going to beat inflation as this is how you “generate” the extra wealth.

If your return is less than inflation, you are slowly getting poorer.

WAIT

This is another massive factor that many people struggle with in practice. Compound interest is amazing, but the exponential effect is only felt if you give your investment enough time.

Generating wealth is not going to happen overnight and it is going to require some patience, but if you are able to stay the course and ignore all the media noise around investments you will be well rewarded.

Stealthy Wealth is a personal finance blog

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August 25 2019