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9 Principles of Wealth Creation

9 Principles of Wealth Creation

What’s the secret to getting rich?

Is there a quick and easy way to be surrounded by supercars, yachts, and caviar?

I spent a considerable amount of time searching for the answer to this question when I first set out on my financial independence journey. What I discovered – which was equally devastating as it was relieving – is that there are no secrets.

BUT… there are a set of principles that, if followed, will allow anyone to build wealth.

I’ve collected the following principles of wealth creation from the world’s wealthiest people. They’re now yours to implement and benefit from if you wish.

1. Decide to Become Wealthy


The beautiful thing about wealth is that becoming wealthy is a choice.

Anyone can become rich regardless of their gender, race, intelligence, background, or current circumstances. All it takes is to decide to become wealthy no matter what.

“I’m in! Show me the money!!!”

Not so fast. Really think about it.

This is a no-going-back decision you’ll have to live with.

You’ll have to be ruthlessly committed if you want to reach your goal. That means sacrifices, hard decisions, and lifestyle choices that aren’t always fun.

But if you make the choice – and I mean really committing to it by redesigning your life to achieve your goal – becoming rich is within your capabilities.

2. Spend Less Than You Earn


You have to spend less than you earn to have money left over to invest and grow your wealth.

If you can’t live within your means, you’ll never become wealthy.

END OF.

Even if you marry into money, receive a large inheritance, or are lucky enough to win the lottery, you’ll soon be broke if you don’t have control over your spending.

It’s simple advice, and you’ve probably heard it a million times before, but it’s incredible how many people rely on borrowed money to get by.

Often, it’s not a case of overspending to make ends meet, but overindulgence and borrowing to maintain a lifestyle they can’t afford.

You should know how much you earn each month and what your outgoings are to ensure there’s always a surplus, and the easiest way of doing that is to…

3. Keep Your Mind On Your Money


Keeping track of your income, expenses, investments, and net worth is vital for building wealth.

If you want to have money, you must understand its flow in and out of your life.

The first step to knowing your flows is tracking your expenses and creating a budget that you stick to.

Once you’ve got clarity over your spending habits, you’ll be able to plan and readjust to meet your financial goals.

You should also track your net worth – if you know your net worth, then you can commit to increasing it each time you get paid.

In fact, you should know your net worth down to the penny at any given time.

“Is that not a tad extreme?”

Yes, and I’m joking – kind of. But the point I’m trying to make is that you’ve got to have awareness over your money to grow it.

4. Pay Yourself First


I never use to have enough money to save. I blamed my low salary and a constant stream of “can’t-miss” social events.

But after I implemented the pay yourself first principle, I “magically” managed to find enough extra cash to stash some each month.

The difference is that I made my financial goals a priority. I put building wealth ahead of nights out, new clothes, and takeaways.

I now “pay myself” my savings first before the money gets frittered away on stuff that I don’t really need.

If you make saving a priority by paying yourself first, it’s only a matter of time before you achieve your wealth goals.

5. Always Have Cash In Reserve


Cash is a terrible investment. The inflation rate beats even the best savings account rates, which means you’re losing money in real terms by holding cash.

But you should always keep cash on hand for two reasons…

Firstly, it’s because life is gonna throw you some curveballs.

You’re guaranteed to be involved in an accident, suffer ill health, lose your job, or suffer some other misfortune at some point.

The difference between those that stay afloat during times of adversity and those that drown, is that the former wise up to the game early on and hold cash in reserve to handle life’s unexpected dramas.

“The same wind blows on us all. Blaming the wind or wishing for a better wind is pointless. Learn to set a better sail.” – Jim Rohn

Secondly, it’s so you can take a position.

Having a war chest of funds allows you to buy into the market after it’s tanked when prices are low and there’s maximum upswing potential.

I wouldn’t advise trying to time the market, but being a contrarian investor and buying during market crashes has made many an investor a fortune.

It’s wise to keep at least some cash in reserve to take advantage of opportunities swiftly and fully.

6. Invest Don’t Speculate


The word “investment” is used way too liberally. Everything from digital currencies to barrels of whisky are labelled as investments.

However, an investment is only an investment if it pays you. All other “investments” are pure speculation that the asset will be worth more in the future than it is now – in other words, GAMBLING.

And although buying assets that have a high chance of capital growth – London property, for example – may pay off big and be relatively safe bets, it’s still gambling.

If you stick to buying quality assets that produce an income, you can’t go wrong.

Legendary value investor, Benjamin Graham, said it best:

“An investment operation is one in which after thorough analysis, promises safety of principal and a satisfactory return.”

7. Live Frugally… To A Point


It’s well known that many millionaires are incredibly tight, and they don’t spend frivolously.

Living frugally will accelerate your savings, but if you’re not careful, you can cross the line from optimised spender to miserly penny-pincher pretty quickly.

I’ve found the best way to strike a balance between living for the here and now and a prosperous future is to simply be conscious of my spending.

For every purchase, I ask: Do I really need this? Why do I want it? Is it going to improve my life?

Anything I want, I write on my “want list” with the date beside it. If I still want the thing in three weeks, then I’ll buy it (guilt-free).

8. Become A Business Owner


The vast majority of wealthy people created their fortune by building a business.

The owners at the top of the pyramid are able to build wealth far in excess of what they’d be able to do on their own as they leverage the skills, time, and experience of everyone that works for their company.

If you want to build substantial wealth, you need to develop a product or service and sell it on mass.

But don’t fret if you’re not entrepreneurial.

You can still become a business owner by investing in the share market.

The share market is a phenomenal invention that allows you to become a part-owner of some of the best businesses on the planet.

And in some ways, investing in shares is even better than building your own business as you get to share in the growth and profit of global businesses without the headaches of running a company.

9. Time is Money


What is money to you? Is it experiences? Possessions? Power? Status? Freedom? Or is it merely a means to get by?

Whatever money represents to you, I challenge you to view money as time.

I picked this golden piece of financial advice up from Your Money or Your Life, and it completely altered the value of money for me.

Instead of viewing money as the value of the things it could buy, I now think of it in time units and how much I have to work to buy that time.

For example:

If my after-tax pay is £500 per week and I work 40 hours to earn that wage, an hour of my life is worth £12.50 (£500 / 40 hours = £12.50 / hour).

Or to put it another way, I sell an hour of my one and only life to an employer for £12.50.

Knowing this, is it worth me paying £12.50 – or trading an hour of my life – for some gadget that only provides fleeting happiness? I think not.

While you can make more money and buy all sorts of consumer crap, you can never buy your time back.

Wrapping It Up


The above principles are proven practices for building wealth that work for everyone regardless of your current situation.

If you apply and live by the principles of wealth creation, you will become wealthy given enough time.

But as your net worth grows, remember not to lose sight of everything else that makes life great. Being rich and having a rich life is not just about having money; it’s also about being rich in your relationships, health, experiences, and thoughts.

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