savings – Information Prime

Everybody wants a juicy secret, even when it abandons pure facts, we fill in the holes ourselves. If you tried to recall the number of gurus who promised they’ll make you rich and the number of money-making secrets you have heard, I am sure you won’t be able to fit them all in one hand.

But you don’t need secrets to teach you how to be rich, there are three things common to every wealthy person on earth and these things are not secrets. Income, savings and wealth.

If you ever had the opportunity to attend an economics class, you’ll agree with me that Income, wealth and savings are recurring discussions, but like me, you probably paid attention just enough to pass your exams. It’s time you thought of how these concepts affect your bank account, and before you run away, no you don’t have to pick up your old economics books, Nope! I have done that part for you. Stick with me.

Wealth or Income: Which is it?

Sure you already know what wealth is. Those assets you already own as a result of past incomes.

And of course, income would then be those financial inflows you receive for something sold or services you rendered. You use it to pay for housing, electricity bills, order food and of course, keep that Netflix account running, how else would you save a boring Friday night?

Genius! You are well on your way. Recognizing the difference between the two concepts is key to both building and protecting wealth. Income that is closely managed and carefully invested can create wealth over time.

Costs and debts

After receiving your income you spend it on recurring costs like Food, housing, transportation, clothes etc. These can be properly managed with a budget.

Additionally, you may have debts to pay and if you have the habit of paying them off as quickly as possible, that’s good practice. However some debts are tax deductible, and in those cases, you should consider the benefits of spreading out your repayments, if it’ll save you more money.

Savings and Assets

After deducting costs and debts from your income whatever is left is what you save. To secure their status as wealth-making elements, your savings should be invested as soon as possible, this above all ensures that your financial security is not exposed to inflation.

Assets are resources that you own, control and obtain benefits from. Investments acquired with your savings are assets, and the most efficient assets generate income which leads to savings, thereby renewing the cycle that created them. The value of an efficient investment is also expected to increase over time. Assets include Property, shares, art, jewelry etc.

Moving From Income to Wealth

There is no formula to determine how much wealth is wealth enough for you, or how much income is needed to build that wealth that will keep you satisfied. It all depends on you. What’s common to all of us is that In order to start building wealth, a proportion of our after-tax income should be saved regularly. Financial advisers would recommend a target of one-third but your income has a large role to play here. So let’s start with, how you generate income.

1. Generating Income

Unless you encounter the good fortune of inheriting money, property, or other assets to fast-track your journey to wealth, savings and investments from your income are the two principal strategies that can make you wealthy. That income can be earned in two main ways:

Active or earned income: such as wages, salaries, tips, commissions e.tc which usually involves a degree of exertion to generate.
Passive income: Money is received in exchange for little ongoing effort. You may have to do some work to set it up but after that, it needs less attention. Examples include rents from properties, royalty payments for creative work, and portfolio incomes such as dividends from stocks and shares or interest from bonds.

2. Storing And Saving

High income would not make you wealthy if you have poor saving habits. The danger for people who earn top salaries is that it can lead to a false sense of affluence, resulting in big spending on lifestyle but little set aside in savings.

Financial advisers say you should aim for a goal of saving a third of your income; however, this may be an impossible target for you if you have large obligations. A more flexible approach is to ensure that you always save 10% or more of your income.

Consider adopting some or all of the following strategies to aid you in saving:

Develop a personal budget
Setting financial goals: such as buying a house or funding a master’s degree.
Drawing up a spending plan: for expenditures such as housing, food, transportation e.t.c
Monitoring budgets: weekly or monthly to keep track of spending
Deciding on a percentage of income to save each month, and setting up a direct debit for that amount to go straight into a savings account.
Finding cheaper accommodation, or refinancing a mortgage to achieve a cheaper rate.
Comparing insurance rates and switching to a cheaper insurer; comparing deals from different energy suppliers to cut utility bills.
Shopping with a list to eliminate impulse buys, and buying in bulk in order to take advantage of cheaper prices or sales.

3. Invest wisely

The closer you are to retirement, the less risk you can afford. Before you make investment decisions assess the risk vs the return of such a decision.

Shares (Higher risk, potential for higher income)

Your choices include: Ordinary Shares, Preference shares, Options, Futures or Units in managed share funds

Property (Medium risk, potential for steady income)

Your choices include: Rent from residential, commercial, industrial or Profit from buying and selling

Interest-paying (Lower risk, potential for some income)

Your choices include Savings accounts, Term deposits, Debentures, and Bonds.

You can also consider supporting a startup this can result in big gains, but many fail so it can be risky.

One common strategy is to create an investment portfolio spread across a variety of assets with different risk levels, such as shares, property, and bonds.

4. Maintaining and Managing Wealth

It’s good practice to re-evaluate your investments from time to time; you may find better assets to invest in, or opportunities to have better returns at lower fees.

Also political and economic events affect your investments, so it’s always good to watch out for them and react accordingly.

Now you know.

As you go through life you’ll encounter people promising to make you a millionaire or billionaire, now you know that if their secrets don’t include income, investments or budgets, it’s best you pick up your shoes and run.

Do you like what you see? What stage of the wealth cycle are you in? If there is anything you feel this post is missing, comment below, and let me know. I love to hear from YOU.