7 Dos and Donts of Building Wealth

Building Wealth
Finance charges, interest payments, getting discouraged about your finances… all problems that can occur if you let yourself fall behind. Whether it's bills, credit cards, or student loan payments, falling behind can be a very difficult problem to come back from. The more you have to pay out in charges, the less you will have to invest in your future.

1) Building Wealth #1
Set goals

If you do not know where you are headed, how do you get there? In order to accumulate wealth you need a plan. Write out your goals, a way to achieve them, and you'll be on your way to an early retirement.

2) Building Wealth #2
Invest early

The greatest thing you can do to build wealth is start early. Even if you can't invest much, start with what you can and let your money grow over time. As Albert Einstein said, “compound interest is the greatest mathematical discovery of all time.”

3) Building Wealth #3
Invest in what you know

Whether you are looking to invest in real estate, stocks, or anything else, make sure you know how the investment works. The great Warren Buffett was often criticized for not investing in technology during the dot-com boom. His answer was simple. If you don't know the business model, what the company does on a day to day basis, or how it generates revenue now, and in the future, then stay away from it. This principle can be applied to all types of investing.

4) Building Wealth #4
Do not do what the crowd is doing

When everyone is starting to get into an investment that is generally when the smart investors are getting out. If everybody knows a stock is hot, or that their real estate market is booming, it generally indicates a bubble and that it's time to cash out. Investors make money buying low and selling high. If an investment is hot and lots of money is flowing into it, you can't buy low.

5) Building Wealth #5
Do not try get-rich-quick schemes

Don't get greedy. This is easier said then done, but don't try to gain too much too fast. Building wealth takes time and hard work… there is no easy way to get rich.

6) Building Wealth #6
Save more

This is another one that sounds pretty basic, but can be difficult to achieve. Often times people want the instant gratification and go out and treat themselves. If you have some money burning a hole in your pocket at the end of the month, save it. Think about how nice it will be when that money is working for you rather than heading out shopping.

7) Building Wealth #7
Learn the Art of Compounding

Compounding will help you grow your wealth tremendously. At 8% interest rate, compound annualy, you can double your investment every 10 years. Imagine having $100,000, with a 8% interest. You will have $200,000 after ten years. Add another 10 years with 8%, and this amount now becomes $400,000. Add another 10years, (after 30 years), your $100,000 is now worth $800,000. That is the magic of compounding! 

That is what Building Wealth is all about.