Many years ago, I hired a personal trainer to help me become healthier. Here's what she told me:
- Eat better foods
- Eat smaller meals throughout the day
- Exercise regularly
- Drink more water
- Get more sleep
The funny thing is this was not rocket science and none of this was new to me in the first place. In fact, everyone should know that these five simple things are essential to healthy living. The problem is they are not easy to practice – simple, not easy.
Just like it takes discipline to make things happen for healthier living, building wealth is not that complicated. It too, is simple, not easy. There are a few simple things that you can do to build wealth:
Spend less than you earn.
The key issue surrounds spending. I've always said it is not how much money you make, but rather what you do with money that counts. It you want to build wealth it is essential to control your spending. It is so easy to get carried away, especially in a society that fosters immediate gratification and competition among your peer group.
Related article: Know your spending
Pay yourself first.
The Wealthy Barber by David Chilton made this phrase famous. He preached the merits of investing 10% of your income on a monthly basis. It's like exercising . . . it may be difficult to start but after a while you tend to feel much better about it. Talk to a financial advisor about making automatic deductions from your bank account. Then every year, try to increase the amount you invest. Over time you will be surprised at how much you are saving every year.
Related article: Pay yourself first is the best way to save money
Pay off non-deductible debts.
Many financial books talk about paying down debts but I think some debt is good debt. The worst kind of debt to have is debt where you are not able to deduct the interest on your tax returns. The two most common forms of non-deductible debt are credit cards and the mortgage on your personal residence. Let's assume you have a great mortgage rate. Paying down that mortgage as fast as you can might be the equivalent of a 7% return. That's one of the best investments you can make.
Related article: How to reduce your debt
Be conscious of your net worth.
By definition, your net worth is your total assets (home, investments, RRSPs, etc) less all your liabilities (mortgages, credit cards, lines of credit, other debts, etc.). Your goal every year should be to increase your net worth. Never go backwards! There are only 2 ways to increase your net worth. Either you must increase your assets by investing more or you need to reduce your debts.
Related article: How to calculate your net worth
Invest in wealth building assets.
It is so easy in today's society to get caught up in spending money on things that provide immediate gratification. Often these consumer goods are depreciable assets or assets that have little to no future value. The secret to building wealth is to ‘spend' your money on appreciable assets like real estate, stocks, bonds, mutual funds, etc.
Related article: Financial success comes from financial assets
Everything in this article you have probably heard already and know. Then why do we not have more people in this country that are wealthier? Just to re-iterate, wealth building is simple, not easy. It takes discipline to make simple things happen. Sometimes we choose to make things more complex than they have to be. Focus on these key principles for building wealth and don't get caught up in too much detail.