Many people dream of becoming rich. Money provides security in old age, more peace and freedom or simply helps to fulfill one's own wishes.
There are many reasons for striving for wealth. However, most people do not give serious thought to how to achieve greater wealth.
How to get rich is explained below.
1. Check your finances
The less you spend from your income in a month, the faster your savings will grow. To avoid unnecessary spending, the first thing you should do is get an overview of all your expenses and income. Analyze your buying behavior and look for expenses that can be reduced.
On the way to wealth, you should pay off any debts in the first step and be careful not to accumulate more in the future. Among other things, they can be avoided by not using credit cards with high interest rates.
In addition to the usual expenses for food and cosmetics, insurances can also swallow up considerable sums every month. That's why you should compare the costs and benefits of each insurance policy. Many insurance policies are often unnecessary or overpriced. Here you can either change or cancel immediately.
Most contracts can be paid monthly or annually. Those who choose the annual option usually save some money. The disadvantage here, however, is that transfers can be forgotten and thus accumulate reminder payments or penalties. That's why it's better to transfer the money monthly and keep an eye on your expenses.
2. Watch each of your account movements
Take a close look at your monthly income and expenses. In the meantime there are a lot of programs and apps that help you to stay on top of things. This way you can analyze your expenses and cut unnecessary costs.
Not every tip for saving money is useful. Be smart about saving money – it doesn't pay to pay less for gas if you have to drive to the other side of town to pay for it. Rather direct your focus on the real money traps. This includes, for example, comparing electricity prices.
3. Calculate your monthly budget
Think about how much money you need for which expenses. Create a fixed amount for regular expenses such as rent and electricity, and a variable figure. The variable part covers different expenses that vary from month to month. Lastly, you subtract your necessary budget from your income. The result is the savings rate you set aside each month to build your wealth.
The savings rate should be chosen carefully. You should be able to come up with the amount each month without having to significantly reduce your quality of life.
If you want to know how easy it is to make a cost plan, check out my article "making a cost plan".
4. Use debt
Debt is not always bad. Sometimes they even help you with your wealth planning. However, here we are not talking about consumer debts, whose loans you have to pay off with interest.
Debt makes sense when..
A)… They increase your income at a later point in time
A student loan, for example, initially places a financial burden on you. However, the capital is not lost, after all, you put it into yourself. Studying improves your chance of earning a higher salary after graduation.
B)… Have the interest deducted from the costs
when you buy a property to rent out, you can deduct the interest from your taxes and thus save on your taxes.
C)… The debts have a disciplinary effect
if you cover the cost of a property with debt, you will be forced to repay the amount each month. In this way, you have no choice but to save in other places.
5. Give your savings a structure
Once you have savings, it makes sense to structure it. It's best to divide your savings by three:
A) short term
A sum of two to three months' salary should end up in this category. It is there for any unexpected expenses, such as the cost of a handyman or a new dishwasher. Stored in a call money account, you can access the money quickly.
B) medium term
with the medium-term invested money you can cover your planned purchases and expenses for the next years. This includes, for example, a trip. This part is not suitable for investing in stocks or other securities.
this part is for your actual wealth building and can be invested in real estate, commodities or stocks, among other things. A fixed amount should flow into a long-term investment each month.
If you categorize and allocate your savings well, you don't have to sell your securities as soon as they start to decline in value for a limited time.
6. Take advantage of new developments in the financial market
The financial industry is on the move at the moment. Young technological companies break up the old structures. This is how the so-called fintechs came into being. With fintechs, you can safely do without other players like your bank.
Up to now the credit situation was clearly regulated. People who take their savings to the bank receive 1 percent interest. The bank, in turn, lends this money on, earning 7 percent interest. Through fintechs, you can make your bank's margin work for you. We are talking about direct loans: as a lender, you enjoy the higher interest rates, while the borrower accumulates less interest than at the bank.
7. Think about taxes
In the end, taxes are simply another cost that is deducted from your earnings. As with all other expenses, the goal should be to keep taxes as low as possible. There are some legal ways to do this:
- If you invest in a property that you don't want to use yourself, you can deduct all the costs of renovation from your taxes.
- With some financial products, such as life insurance, you can also save on taxes.
However, you should take the tax advantages with a grain of salt – they are a good argument for buying, but you should not dare to invest only because of the tax savings.
8. Be your own investment
Acquiring education is not finished after graduating from university or school. On the contrary- it should be viewed as a lifelong process. The total sum of knowledge and skills is summarized with the term human capital. Besides the financial investments you should not neglect your human capital. Increasing your human capital will also have an impact on your income – attending an expensive financial seminar will cost you money, but you'll learn new skills that you can use for the rest of your life and save money.
Another classic example is your studies – in the course of the semesters you continuously hone your human capital and do without a regular income in return. After graduation, your chances of getting a well-paying job are much better for this than before you started your studies.
9. Enjoy your life
Saving money comes with restrictions. However, make sure they don't completely take over your life. You shouldn't suffer during your wealth building process. The goal is rather to approach your freedom step by step. Treat yourself regularly to keep the fun going.
10. Let others share
Wanting to build a fortune is not a sin. But don't forget our high standard of living compared to many other countries. In our latitudes, most people have enough food, clean drinking water, a place to stay and even the opportunity to save decent money by accessing the financial market.
Watch your spending, determine your savings rate and choose your investments carefully. But don't lose sight of your privilege either and think about regular donations.