How to build up your wealth
Building wealth is not always easy but can be simple and like losing weight, it takes time. Don’t worry, you don’t have to live on kawunga and bijanjalo, building wealth is about changing your behaviours and attitude towards money. It is popular to believe that to build wealth, you need heaps of cash. Good news is that is not always the case, you can start with what you have.
Let us look at some of the things you can do to build wealth.
- Develop a financial plan
A financial plan is a process of managing your finances so you can achieve your goals and objectives. Some of the steps include; 1) keeping track of your expenses 2) Establishing your net worth (what you own minus what you owe) 3) Writing down your saving goals e.g. buy a house, save for kids education, retire comfortably, and so on.
- Reduce your expenses
I know! It is not very exciting but to become wealthy, you must spend less than you earn and this means reducing your expenses. Aim to widen the gap between your income and expenses by 1) saving a percentage of your income 2) Find ways to make more money by looking for a better paying job, seek a promotion at work, or even start a side hustle.
- Understand and keep track of your spending
Aim for a good understanding of how you spend your money. There are hundreds of Apps that can help you track expenses, just look. This way, you can look for ways to trim the excess fat.
- Own assets that generate passive income
Make your savings work for you by investing in unit trusts, shares, bonds, rental property. In other words, make money while sleeping.
- Reduce liabilities
Do not agree to take that car loan and stay away from credit cards. Avoid unnecessary borrowing and opt to pay cash.
- Reduce/pay off your debt
The amount of debt we have accumulated can easily overwhelm us and it looks impossible to clear what is outstanding. We wish we could repay faster and sometimes we wonder if we can wish them away. First, do not take a loan to pay off another loan, avoid taking up more debt such as credit cards, mobile/chama/Sacco loans, opt to pay your debt on time to avoid penalties. Once the debts are cleared, you will have more cash to save, invest and eventually build wealth.
- Save and invest that extra cash/income
You just got your end of year salary bonus and you are thinking about how you going to give yourself a treat: you go on vacation, buy that big TV, and change your wardrobe. Well, don’t! Save all or part of it. Believe me; you will need it all and some in the future.
- Have an emergency fund
No one can predict the future and unplanned expenses will always arise, so it makes great sense to have an emergency fund to cater for such situations. Aim for 6 months (or more) of your living expenses.
- Develop good money habits that lead to wealth creation
It is about making your money go further, changing our spending habits, having discipline and making better choices. Incorporating good money habits into your daily life will make a positive impact on your future, for example, carrying lunch to work, avoiding unnecessary purchases, budgeting, spending less than you earn, avoid debt, price comparisons before purchasing, asking for discounts and so on.
- Pay yourself first
Pay yourself first then pay the bills, not the other way round. Aim to set aside a percentage of your income (on payday) and spend the rest according to your budget. The easiest way is to automate your savings via a standing order. This will ensure you safeguard your future and save towards your set goals
- Diversify your income
Yes, you heard me right. Do not rely on one source of income. You can sell stuff online, offer consultancy services, and own a rental apartment. Aim to generate more money and then invest it.
- Find the right partner/spouse
You might be wondering what it has to do with building wealth. If for example, you are a saver and you end up getting married to a spender, there is a huge chance you will get into debt. If already married, get on the same page about money and finances. Financial compatibility is key.
- Hang out with the wealthy
You are the company you keep. We become like the people we associate with. If you want to be wealthy, surround yourself with self-made peers who have achieved a modest level of success. You are bound to learn from them and expand your thinking.
- Start small but start NOW
Small and consistent changes done over a period of time will create massive wealth. Start with what you have and take advantage of compound interest. It’s about earning interest on top of interest and it’s a sure way to build wealth exponentially.
It’s never too early or too late to build wealth. Start Now!