Whether you’re a recent college graduate, a 30-year-old with a decade of job experience, or even a senior citizen, it’s never too early or late to start planning for the future. While wealth management can be intimidating and overwhelming at first, you’ll find that it’s easier than you think when you follow these five essential rules:
Rule #1: The key to wealth is living below your means
The key to becoming wealthy is in the numbers. For example, if you want $1 million, you need to make $100k a year for 40 years (50 if you factor in inflation). Now imagine if half of your annual income went towards expenses and taxes: half of your potential wealth gone!
It’s not just about how much money you make each year. It’s also about how much money you spend daily. This means living below your means and saving up as much as possible from what remains after paying all of your bills. You don’t have to live like a pauper or deprive yourself entirely—but it does mean being smart about the purchases that matter most: housing, food, transportation, insurance policies and anything else essential for day-to-day life.
Rule #2: Grow your money
That’s right. I said grow it, not protect it. You need more than just a savings account to win the wealth game. You have to invest it!
Investing is where the true millionaires keep their nest eggs safe from inflation and other economic forces that would otherwise ravage them over time.
There are many different types of investments—from stock market investments like buying shares to real estate deals like buying a property with no mortgage. But each of these types has something in common. They allow you to make more money than if you kept your cash just sitting around doing nothing for years.
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Rule #3: Manage risk by diversifying your assets
Diversification is a strategy for managing risk. You can diversify in many ways. But the most common is to have a diversified portfolio of assets (property, stocks, bonds, cash and other investments). A diversified portfolio isn’t always enough to guarantee you’ll avoid losses. There are no guarantees in investing. However, it will help you sleep better at night by knowing that you’ve taken steps to reduce your overall level of risk exposure.
Rule #4: Invest in things you understand
Investing is about understanding the risk you’re taking and the potential return on your investment. If you are not comfortable with a particular type of investment, don’t do it!
Rule #5: Know yourself!
While learning about the world of investments and wealth management, it is important to keep in mind that several factors influence the outcome of your investment decisions.
In addition to these factors, you should also know yourself! This means knowing where you stand on things like risk-taking or investing in stocks versus bonds. You may have an affinity for certain industries or companies based on their products or services. Your personal philosophy will guide you through this process.
To retire wealthy, you must first create the wealth. It seems like a simple statement, but it’s one that many people often take for granted. Creating a long-term income stream will take effort and planning on your part. Take note of the five golden wealth management rules above, and put them into practice to ensure that your financial future is bright.