Finance

Five Financial Lessons to Build Wealth

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Thanks to my upbringing I’ve I always been kind of sensible with the money: the lesson I’ve learned from my parents was simple: earn more than you spend. To do this simple budget sheet has been valuable tool that I’ve ever since applied in that.

My first lesson has been useful, however not quite enough by itself. It does not really advise what to do with the surplus I’ve so hard worked for. Without the proper guidance to for that one cannot expect, but to keep working hard in order to earn more than one can spend. However, as we grow old and tired we are able to work less and less, so it is indeed worthwhile to think what to do with the surplus.

What to do with the surplus?

Invest 10 % of what you earn each month, is a mantra that I’ve heard from my oldest brother and as some echo like voices from seemingly successful people. This makes sense, yet without the proper definition for investing one cannot hope to succeed.

Second lesson I’ve learned only recently, first I caught the reference of this in Robert Kiyosaki’s books, later I found it very well laid out in the book Richest Man in Babylon. There was a clearly instruction that we not only ought to invest 10 % of what we earn, but we should also keep it and make it work for.

Working hard and creating the money is easy.

Keeping 10 % of the surplus is easy.

How to make the 10% work for you?

Robert Kiyosaki defines investment clearly as something that will create more money for you. Unless it has brought more money for you it is not an investment.

You bought new shoes? Unless you sell them away with more, they are not an investment.

You bought a new house? If you rent it out, and it creates passive income for, it is an asset.

What if you buy an house, which you are hoping to sell with higher price, but you’ve to pay for it each month? Not an investment, it’s a liability.

You invest money for assets that generate money for you. They are not investments unless they generate money for you, no matter what your accountant tells you.

The key to make investments work for you, is to put some initial work there as well. So you do not only to work to earn the money, you work to keep the money by studying  and investigating carefully exactly what are you going to do with it. This thought to investigate the opportunity as long you worked for the money you are about to invest, I picked up from Brian Tracy and I think it’s absolutely brilliant!

How do you know when to invest? Once you are sure you won’t lose money. Warren Buffet’s two rules for investing are: “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” As a guiding principle for your study, find out the trend at which you are buying, never forget that winners buy low and sell high.

Recap:

  1. Earn more than you spend.
  2. Keep 10 % of what you earn.
  3. Investigate investment opportunities
  4. Calculate your hourly salary, divide the sum you are about to invest with that and set time aside from your calendar for systematic study of investment opportunities.
  5. Never lose money. Buy low, sell high.

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