Monday, July 21, 2008

Building Wealth - A Simple Plan

I know that get rich quick schemes are enticing. The lure of making money fast is too tempting for some people to resist. Maybe there are some methods out there which you can use successfully to generate significant wealth over a short period of time. However, I suspect there is either a certain amount of luck, a large amount of risk involved or both. In fact the cynic in me suspects that the only people getting rich from some of these schemes are the promoters.

My plan to build wealth is simple. Spend less than I earn, save the rest and invest my savings in quality investments. I said the plan was simple not easy. And I can't claim it as my own either. It is essentially the story laid out in George Clason's personal finance classic, The Richest Man In Babylon. If you haven't read this book, I think you're missing out.

This deceptively simple formula does take considerable commitment though. Obviously it helps if you can maximize your earnings. This might be through developing your career or maybe via a more entrepreneurial approach.

Controlling expenditure is where most of us run into trouble though. A budget is one of the tools which is critical for managing money in this context. Knowing where your money goes is the first step to controlling your expenses.

Then, by putting a savings plan in place, ensuring that cash is being put away out of harm's way on a regular basis, you'll start to build up some capital to start up your investment portfolio. Untold numbers of books have been written on the subject of investment but the main point I want to make here is that you should strive to re-invest any income derived from your investment portfolio. Use the power of compounding to your advantage.