Many dream of attaining financial freedom, but few ever get close. Without a clear vision and an intentional plan, your wishes will only remain a pipe dream. But, if you will re-look at your priorities and goals, and if you are prepared to implement a simple wealth-building strategy, you can set yourself up for a brighter future.
Today I want to look at 7 SIMPLE STEPS TO BUILD UP A WEALTH PORTFOLIO
You need a Plan
You need to know what you want to achieve, and you need a plan that will help you to reach your goals.
Dare to dream. Aim high.
Determine your goals and aspirations – Where are you now? Where do you want to end up? By when do you want to achieve your goal?
Once you know what your objectives are, you need to get some advice on …
- how much you will need to invest over that term
- how best to structure your investment
- where to invest your money
Eg. If you want to build up a million rand over the next 25 years, you will need to invest R2000 p.m. and increase your saving by inflation per year. If inflation was at 6% and your capital grows at 10% p.a. (Cpi plus 4% p.a.), you will build up R4.3 million over 25 years, which would have the same buying power as R1million in today’s money. If you wanted to build up the equivalent of R1million in 15 years, you would need to invest R4100 p.m.
Map out a plan to get from where you are to where you want to be. Also make sure that you stick to the plan, monitor your progress with your advisor from time to time, and make sure you adapt your plan to meet your future changing needs.
“Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.” (Proverbs 21:5)
Make Savings and Investing a regular Life-long Habit
Get into the habit of saving and investing part of your income each month. Be disciplined.
Make sure that the amount you are looking to save is affordable, and automate the plan by setting up a regular debit order.
Once you are committed to saving you won’t even miss the amount you put aside each month. And, you will be surprised how quickly your savings grow.
You might think you don’t have ‘spare’ cash to save, but you can cut back on your unnecessary expenses and free up surplus cash from within your budget that you can invest. It might be difficult at first but it is doable. Build saving into your budget.
“Hard work brings profit, but mere talk leads to poverty.” (Proverbs 10:23)
Differentiate between Saving and Investing
You need to build up savings for your short-term cash flow needs, while you need to build up your growth investments over the long term.
Your savings need to be low risk and accessible, while your growth investments can be high risk as you will be investing over the long term to generate growth.
Savings and investments are both vital components of building your Wealth Portfolio.
Your SAVINGS will allow you to build up a RESERVE FUND to ensure that you have cash available for emergencies and/or opportunities that may arise from time to time. Consider your car. It has a reserve tank to ensure that you have backup petrol should you run low on fuel. In the same way, you need to build a reserve.
“Take a lesson from the ants, you lazybones. Learn from their ways and become wise! Though they have no prince or governor or ruler to make them work, they labor hard all summer, gathering food for the winter.” (Proverbs 6:6-8)
Your INVESTMENTS should be set aside to generate EXPLOSIVE GROWTH over the longer term. Growth investments may be volatile over the short term, but the higher risk should give you the ability to achieve real inflation-beating growth over time. If all your funds are invested in low-risk short-term funds you will end up stunting your growth opportunity and may even see your capital erode against inflation.
“He who gathers money little by little makes it grow.” (Proverbs 13:11)
A healthy balance between SAVINGS and INVESTMENTS is, therefore, a vital part of building a Wealth Portfolio.
Diversify your Money
Don’t keep all your eggs in one basket. Rather spread your investments.
Diversifying your investment portfolio reduces risks.
By diversifying your investments, you can also save towards specific goals over the short, medium, and longer-term.
Diversify your investment across geographical regions (local and offshore), between asset classes (cash, bonds, equity & property), and across investment managers and investment vehicles to ensure a good spread. It is important to get advice on how best to construct your Wealth Portfolio.
“Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.” (Ecclesiastes 11:2)
Shrink your Debt
Debt is bondage. It causes stress and erodes your cash flow.
You need to shrink your liabilities and grow your assets.
If you are in debt, get determined to deal with it and break the debt cycle. Maybe you can sell some assets to settle your debt? Maybe you can review your budget and cut some wasteful expenses that can be used to pay off your debt burden over a shorter period?
Every cent that you need to pay towards debt repayment, is a cent less that can go into your Wealth Portfolio, so think twice before you spend your hard-earned money on “things” and think three times before getting deeper into debt.
Decide today to attack your debt!
Proverbs 22:7 “… the borrower is a slave to the lender.”
Save before you Spend
You need to save and invest before you spend money
Jim Rohn shared an interesting view: He asked the question what the major difference is between rich and poor people? His observation was that it all boiled down to the order they used their money. From his perspective, he said that rich people usually save before they spend, while poor people usually spend before they save. In a nutshell, he said that…
- POOR people generally SPEND FIRST and save what is left over. (The problem here is that there is never anything left over, so nothing ever ends up in savings)
- On the other hand, RICH people generally SAVE & INVEST as a priority and then spend what is left over. (This way wealth is built up over time and the leftover funds are the only part that ever gets spent)
“The wise man saves for the future, but the foolish man spends whatever he gets.” (Proverbs 21:20)
Invite God to be your investment partner.
“Commit your work to the Lord and then your plans will succeed.” (Proverbs 16:3)
Give God your best. Give Him your first fruits. Putting God first should form the backbone of your approach to managing your money.
“Honor the Lord with your wealth and with the best part of everything you produce. Then he will fill your barns with grain, and your vats will overflow with good wine.” (Proverbs 3: 9-10)
Don’t be tight-fisted. Be a giver.
Jesus said, “Give, and it will be given to you. A good measure, pressed down, shaken together, and running over, will be poured into your lap. For with the measure you use, it will be measured to you.” (Luke 6:37-38)
“Give freely and become more wealthy; be stingy and lose everything. The generous will prosper; those who refresh others will themselves be refreshed.” (Proverbs 11:24-25)
You can BUILD UP A WEALTH PORTFOLIO over time.
“But remember the LORD your God, for it is he who gives you the ability to produce wealth.” (Deuteronomy 8:18)
May God give you wisdom and bless your wealth-building plans.
“The blessing of the Lord makes one rich, And He adds no sorrow with it.” (Proverbs 10:22)