November 24, 2023

Top 20 tips for wealth creation

Wealth creation is a slow and steady process that involves financial discipline, consistent investing, and smart decision-making. In this article, we explore 20 top financial tips and how they can help you build a better financial future.
1.Avoid being financially dependent on another person: Being wholly financially dependent on another person can place you in a vulnerable position. Many people, especially stay-at-home mothers, find themselves trapped in unhealthy relationships, with financial dependence being the major barrier to exit. If you do intend to become a stay-at-home parent, discuss with your partner ways to ensure that you can create wealth in your personal capacity.
2.Put your oxygen mask on first: With the rise of the ‘sandwich generation’, more and more people attest to feeling financially torn between financing their children’s education on the one hand and helping their aged parents financially on the other. To break the cycle of dependency, it is important to first secure your own financial future by putting your oxygen mask first. Remember, your children can borrow money to finance their tertiary studies, but you cannot borrow to fund your retirement.
3.Start saving with your first pay cheque: Your future self will thank you for following this seemingly trite advice. When it comes to investing, time and compounding growth are your two greatest allies, and those investment gains achieved in your 20s will prove to be invaluable over time. The decision to invest from the outset of your career is likely to create a habit of financial responsibility and lifestyle financial well-being.
4.Invest consistently in a well-diversified portfolio: Sustainable wealth is created by consistently spending less than you earn and investing the difference in a well-diversified portfolio over time. There is no quick way to make sustainable wealth, so be intentional about aligning your budget with your affordability and finding room in your budget to save for the future. True prosperity lies in exercising financial discipline by managing expenses, avoiding frivolous expenditures, and saving surplus income in an investment strategy aligned with your long-term needs. Remember, wealth is what you don’t spend.
5.Earn money while you sleep: Time is a great leveller because every person only gets 24 hours a day, which can never be re-created or re-lived. Active income is the money that you earn in direct exchange for your time and skills, and this income is generally limited by the amount of time you’re able to spend doing your job. Passive income is not proportional to the time you spend working and allows you greater freedom, choice, and most importantly time. Further, passive income can be scalable, allowing for potential growth and increased earnings over time. It also reduces dependency on a single job and can open doors to other investment opportunities.
6.Begin your marriage living on just one income: Many couples have claimed this to be the single best piece of advice they ever received. If you’re newlywed and both earning good incomes, consider living on one income while saving the other. When you have children, your future selves will be grateful for the choices your accumulated capital provides.
7.Don’t move for money: Don’t let the promise of more money be the overriding factor when considering a new job or employment opportunity. Being trapped in a toxic work environment or subjected to an unhealthy culture at work can cost you more in the long run and take its toll on your mental health. When considering a new job prospect, it’s important to understand the culture, ethos, and value system of the company and its directors to ensure that they are aligned with yours.
8.If it sounds too good to be true, it probably is: As glib as it sounds, this saying holds truer today than ever before. Fraudulent investment scams and Ponzi schemes thrive in high-interest rate environments and tough economic conditions where the promise of quick investment wins is often difficult to resist. The fact remains, though, that any investment opportunity that promises guaranteed investment returns that are above what the market is able to achieve should be approached with great caution. All that glitters’ is not gold.
9.Read the fine print: Before buying anything, make sure you read the fine print and understand the nature of the contract you’re entering into. Overlooking important terms and conditions can cost you dearly, especially when making big purchases such as property and vehicles. While deal assists and balloon payment arrangements can make the upfront cost of a vehicle seem more affordable, such arrangements can result in you paying a lot more for the vehicle in the long term, so know what you’re signing.
10.Beware of soft loans: Think carefully before making interest-free loans to family members or friends. Over and above the risk of not being repaid, you also run the risk of doing irreparable damage to the relationship. Further, your willingness to lend money could be an enabler for their irresponsible money management and reluctance to take responsibility for their financial affairs.
11.Automate your savings: Warren Buffett is famous for saving: ‘Do not save what is left after spending; instead, spend what is left after saving’, and the best way to achieve this is to automate your savings by using a debit order system. Map out your goals, calculate how much you need to save in order to achieve them, and then automate your savings.
12.Don’t increase your spending when your salary increases: Avoid using your salary increase as a reason to live a more expensive lifestyle. While you may be tempted to buy a more expensive car or live a more lavish lifestyle, consider the lost opportunity costs of not investing the additional income. It’s easy to allow lifestyle creep to allow former luxuries to become new necessities, so guard yourself carefully.
13.Buy quality: More than just saving and investment, being money savvy means spending wisely and intentionally by buying quality goods and services. Whether it’s shoes, cars, appliances, or education, keep in mind that inferior products or services can end up costing you more in the long run, with a whole lot of hassle and time wasting.
14.Know what you own and why you own it: Every asset that you own should be aligned with your financial goals and serve a specific purpose in your portfolio. This knowledge can empower you to make informed choices, minimise risk and align your holdings with your objectives and values.
15.Negotiate your first pay cheque: Starting your career earning less than you are worth can have long-term financial implications and can affect your bargaining power going forward when it comes to future salary increases and employment offers. Earning less than you are worth can result in lower group life and disability benefits, less retirement funding, lower bonuses, and lost opportunities in terms of how you could have employed the extra earnings to leverage debt or further your education.
16.Buy experiences: Research is clear that spending money on experiences provides us with greater satisfaction than purchasing material goods. Making memories through meaningful experiences has been proven to be more rewarding over the long term and has the added benefit of connecting us with other people and enhancing of sense of self. As such, when making a purchase, consider how it will affect your overall well-being, what value it will genuinely add to your life, and how much long-term satisfaction it will create for you.
17.Always pay more than the minimum repayments: Only making the minimum monthly repayments is the most expensive way of using your credit card, as you will end up paying interest on the amount owed. The minimum payment is the smallest amount you can pay each month and is generally based on a percentage of the outstanding capital. Remember, interest on credit is calculated on a daily basis and compounded every month, which means that if you only make the minimum monthly payment, you’ll end up paying interest on interest.
18.Create a financial calendar: Set out a year planner for your money so that you can schedule key dates such as tax returns, life insurance and medical aid premium increases, deposits due, living annuity drawdown reviews, festive season budgeting, back-to-school costs and any large capital expenses that can be planned for. This is a valuable tool for ensuring that you have access to sufficient discretionary funds to cover your expenses without having to borrow money or access debt. It will also go a long way to alleviating money-related anxiety.
19.Preserve your capital: When moving between jobs, resist the temptation of withdrawing your accumulated retirement savings. Over and above the tax implications of doing so, withdrawing your cash will interrupt the magic of compounding interest and lock in your gains. It’s, therefore, essential to consider the potential consequences of withdrawing funds early and to seek advice before making any withdrawals.
20.It’s not a bargain unless you need it: A bargain is only valuable if it fulfils a genuine need. While sales may lead you to think that you’re saving money by purchasing at a reduced price, this theory only holds if the purchase is aligned with a goal, has a clear purpose, and can enhance your life. More thoughtful consumption results in less waste, more intentional use of resources, better sustainability, and a more responsible approach to consumerism. This is exactly what Warren Buffett meant when he said, ‘Price is what you pay. Value is what you get’.

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