Financial wealth is a condition in which your investments work for you.
Creating sufficient Income is only the first part of the solution. Using part of that income to create Capital and then making the capital work for you is where real wealth creation takes place. When the money you have earned starts producing income for you.
I have referred to it in a previous chapter, but Life and Disability Assurance are essential components of any financial plan. You must ensure that you, or the necessary amount of capital, will continue to produce the income needed to satisfy the needs of yourself and your family. These are the baby steps in making money work for you. The younger you are when you put this assurance in place the lower the cost and the greater the benefits.
Fundamental Truths:
- People die, institutions do not.
- Be extremely wary of giving “individuals” “People” control of your hard-earned capital.
- Look for the track record, when choosing the institution or company that will manage your investments.
- The higher the rate of interest being offered the higher the risk. Be extremely cautious of any investment that offers you a rate of interest higher than that being offered by the various financial institutions. If it walks like a duck, looks like a duck, and sounds like a duck, it is a duck. Do not be conned into risking your hard-earned capital for “fantastic” returns / interest / growth. If it sounds too good to be true, it most probably is!
- Do not put all your eggs in one basket. Spread your capital between a selection of reputable Investment Companies.
There is a fundamental security in property. But take care.
- There is no room for sentiment in investment. If you own the house you live in, and it has a value of $/₤/R/€ 1,250,000.00, and the present return on capital is 6% per annum, you are paying the equivalent of $/₤/R/€ 6,250.00 per month to live in that house. Then there is the cost of insurance, maintenance, and the rates and taxes. So, consider this:
- What would you pay in rent for the same size house in the same suburb / area? If you could rent the accommodation for less than the $/₤/R/€ 6,250.00 per month, avoid the other costs, and invest the difference, it is better to rent.
- Undeveloped land obviously has a value, but a profit can only be made if the eventual sale value is more than the present capital value plus the interest that the capital could be earning at a bank or similar institution. Do not forget to calculate the holding costs when considering the purchase of land. Interest on the capital, Rates, and taxes etc.
Shares and Unit Trusts
- Death, taxation, and change are the only guarantees in life. If you invest in shares on the stock market or unit trusts, it is safer to invest regular amounts over a number of months than a single large amount on any given day. This form of investment should also be for periods of more than five years. Economic conditions can change overnight, and stock markets and shares are extremely sensitive to economic changes. Shares should be considered as long-term investments. Diversify, and invest amounts regularly, over an extended period.
Use the expertise.
Gold, diamonds, paintings, art, Persian rugs, and a host of other assets can be good investments, but unless you are extremely well informed and have the necessary skills, it is advisable to use the knowledge and expertise of specialists when considering any of these forms of investment.
Ensure the source of income. Save a little whenever you can, as often as you can. Make the money work. Decide what the goals are. Plan the actions that will get you to those goals, and then work the plan.