Week 7: The Rules of Growing Wealth: A Time-Tested, Writer-Approved, Simple Road to Riches

In today's fast-paced world, it can feel like a daunting task to build wealth. However, the principles of financial success have remained relatively unchanged for centuries. Drawing inspiration from ancient wisdom, this article presents seven timeless rules that can guide you on your journey to financial freedom.

Rule 1: Start Saving, Sooner Rather Than Later

One of the most fundamental principles of wealth accumulation is consistent saving. Even small amounts saved regularly can compound over time, thanks to the magic of interest. Begin by setting aside a portion of your income each month, no matter how small. The earlier you start, the more time your money has to grow. I suggest no less than 10% saving rate: Saving Rate = (Total Savings / Total income) * 100. Here is a chart to help you understand how this seemingly small thing, savings rate, propels you to be able to retire early.

Savings rate compared to years to retirement (not having to work for a paycheck)

Wealth-building pro tip: if you have kids you can set them up with their own Roth IRA. Any income they earn (dog walking, babysitting) can be contributed to this account. Imagine what a 15-year boost to their savings can do for their stability when they join the workforce!

Rule 2: Spend Wisely and Avoid Unnecessary Expenses

While saving is essential, effective wealth management also requires disciplined spending habits. Avoid impulsive purchases and prioritize spending on items that align with your long-term financial goals. By tracking your expenses, you can identify areas where you can reduce unnecessary spending and allocate more resources to savings and investments. Implementing a monthly budget with strict spending limits is crucial for maintaining financial control. This strategy helps you avoid impulsive purchases, make informed decisions, and accelerate your wealth-building journey

Rule 3: Invest Your Money Wisely

Once you've built up a savings cushion, it's time to put your money to work. Investing can help your money grow at a faster rate than traditional savings accounts. Consider investing in stocks, bonds, mutual funds, or real estate. However, it's essential to do your research or consult with a financial advisor before making investment decisions. I invest in ETFs, never in a single company stock.

Rule 4: Protect Your Wealth from Loss

Building wealth requires a strategic approach. Diversifying your investments and purchasing insurance can significantly mitigate risks. Invest in areas that are time-tested and don’t promise huge returns. Remember slow and steady wins the race.

Rule 5: Consider Real Estate as an Investment

Owning real estate can be a lucrative investment. Whether it's a primary residence or rental property, real estate can provide stable income and appreciate in value over time. While renting can be advantageous in certain situations, I believe that owning a home with rental potential, such as through Airbnb or long-term leases, offers a more sustainable and financially rewarding option We have a home in which Airbnb income has paid the mortgage for the past 10 years. I like mortgage-free living!

Rule 6: Plan for Your Future

Planning for when you can’t work, should be a top priority. There will come a time when your body fails and you may not be able to work. Who will support you then? Start saving for this moment early and contribute to accounts such as 401(k)s or IRAs. The earlier you begin saving, the more time your money has to grow.

Rule 7: Continuously Improve Your Earning Potential

While saving and investing are essential, increasing your earning potential can significantly accelerate your wealth accumulation. Continuously develop your skills, seek promotions, or explore opportunities for career advancement. By earning more, you'll have more money available to save and invest.

Conclusion

Building wealth is a journey that requires discipline, patience, and informed decision-making. By following these time-tested rules, you can create a solid foundation for financial success. Remember, it's never too late to start. Begin today and watch your wealth grow over time.

Recommended Reading:

For further inspiration and practical advice, consider reading The Richest Man in Babylon. This classic financial guide, written in the 1920s, provides timeless wisdom on wealth accumulation that remains relevant today.

*Create your spending plan: https://thefreesparrow.com/blog/moneymindsetweek1

Photo by Anthony Fomin on Unsplash