After five long years, the statistics show that average earnings are finally inching ahead of inflation. Which means that in real terms, we’re all starting to get that little bit richer, with a little more purchasing power in our pockets.
But here’s a question for you: how much of that added income do you anticipate being able to turn into wealth? Wealth to sustain you in retirement, for instance? Or wealth to achieve that longed-for transformation in your standard of living?
The fact is, most of us aren’t very good at this. Income gets frittered away, with precious little actually saved.
Worse, what we do manage to save often turns out to do little for us by way of wealth-building. Stick your money in a cash ISA, for instance, and the inflation-adjusted return is either zero or negative.
Make the break
So if this sounds like you, then what can you do about this sorry state of affairs?
Actually, the answer isn’t difficult to find. And it’s this: simply do things differently from how you do them at present.
In other words, if your present wealth-building plans aren’t delivering, then it’s time to ditch them and switch to something else.
Simply put, inertia just isn’t going to deliver on the wealth front. You have to act differently – or yet another year will go by, leaving you only marginally better off.
5 resolutions that could make a difference
So what – specifically – can you do differently? Here are five New Year’s resolutions designed to help make that vital difference.
The good news: you don’t have to join a gym, start jogging or go on a crash diet.
The not-so-good news: if you really want to make a difference to your wealth, you’re going to have to overcome a lifetime’s habits built up by living in our consumerist, instant-gratification society. Which isn’t easy.
It might not be comfortable, but at the end of the year, the figures should speak for themselves. Namely, you could be wealthier than you are now. And, even more importantly, you could be wealthier than you would have otherwise been.
So here we go…
1) Spend less, save more
Fairly obviously, wealth-building starts with saving. So save more.
Now, I’m not going to trot out the familiar line about taking sandwiches to the office, and cutting back on indulgences such as take-out coffees. Yes, such things work – but the point is to find things that work for you.
And don’t kid yourself: it isn’t going to be easy. After five or so years of falling real living standards, most of us have cut out a lot of wasteful expenditure and become canny bargain-hunting shoppers.
So it’s a question of making real choices. Which, oddly enough, has the potential to deliver larger savings than the odd missed latte.
A new car this year – or in two years’ time? Holiday abroad, or in the UK? And is that kitchen refurbishment really, really necessary?
2) Harness the power of the stock market
So what to do with the resulting cash? Fairly obviously, cash savings accounts – especially with interest rates at their present level – are largely useless.
It has to be the stock market. Time and again, research shows the long-term wealth-building power of investing in solid businesses that are throwing off decent dividends.
And if those solid businesses happen to the temporarily under-valued, then there’s the prospect of market-beating capital growth, too.
You have to take a long-term view, of course, and accept that your capital is more at risk than if you’d stuck the money in a savings account. That’s what long-term wealth-building is all about. There will be good months, and bad months. And good years, and bad years.
But overall, you should be moving in the right direction.
3) Cut the costs of investing
You work hard for your money. Those savings have been painful. And you’re in it for the long term.
So don’t let fees and charges as act as a brake on that long-term wealth-building. Ditch those high-charging investment funds and fancy ‘wealth management’ brokerage platforms, and head to the no-frills cheaper end of the market.
I’m all for having a solid core of low-cost index trackers. But for active investment in individual businesses, I don’t think you can beat managing your own investments.
Pay for advice, by all means – but consider getting out of high-priced funds, and holding your stock market investments via a low-cost execution-only brokerage platform.
4) Create some thinking time
You can’t operate in a vacuum.
Successful investment is about making judgments: judgments as to where the gains could be greatest, judgments as to where the income streams will be most sustainable, and judgments about where the risk will be lowest.
So put aside time to read, research and think. Browse the internet. Set up a different ‘investing-specific’ email address, and subscribe to blogs, newsletters and free opinion and research.
You won’t agree with all of it. You may not understand all of it. But you will learn from it.
5) Measure your progress
As with losing weight, getting fit or cutting back on smoking or drinking, motivation is everything.
Some people keep spreadsheets. Some maintain ‘tracking portfolios’ on services such as Google Finance. And others make a habit of regularly checking their brokerage account.
Frankly, it makes no odds. The important thing is to find something that works for you, and then do it.
What, specifically, are you looking for? Your first share that has ‘double-bagged’, or – even better – triple-bagged, for instance. The first time that a share has paid you more in dividends than you spent on the investment. And your ongoing progress towards that six-figure (or seven-figure) amount of wealth that you’ve been targeting.
Go for it
So there you have it: five wealth-building resolutions for 2015.
Give up in February, and you’ll probably be no richer in 2016 than you were in 2014. But stick with them, and you’ll have laid the foundations that could lead to future prosperity.
What’s not to like about that?
