Get rid of debt
To build wealth, you need to earn interest, and not pay it. The lesser interest you pay, the more you’ll have for investing, and the more interest you’ll earn on such investment.
Getting rid of debt, therefore, is the first step towards building a life-long wealth for most people. Not just getting rid of debt, but you also need to stay debt-free for as long as you can. If you’re already working towards building wealth with a disciplined approach, it’s unlikely you’ll need to take debt for anything except for large expenses such as buying a house.
Basically, debt is the first step towards building wealth.
Plan for contingencies
Life might throw a curveball at times. You or a loved one might get sick, or maybe you could lose your job. When things go south, you need an emergency fund. The amount you need as your emergency fund can vary from person to person, but a good rule of thumb is to have an amount that covers at least 3-6 months of living expenses.
Also, be sure to not invest your emergency fund in any high-risk asset classes such as equities. Stack the cash away in your savings bank account to shield it from volatility.
In absence of an emergency fund, you might end up mortgaging your house or selling your assets, should any immediate need for cash arise. This could in turn could adversely affect your wealth because of interest expense or a compromised price for quickly selling your assets.
Invest a portion of your income
Make it a point to always set aside a slice of your income to invest in your future. Aim to save at least 50% of your income.
That being said, it’s always wise to establish a rainy-day fund before you begin investing your money. The reason being that investments generally carry at least some sort of risk. You don’t want to put your emergency fund in a risky investment vehicle.
The remainder of the money, however, you can invest in various asset classes to maximize your wealth in the long term. Speak to your financial advisor about your options and he should be able to create a decent investment portfolio for you on the basis of your risk appetite.
