One thing I’ve learnt about money over the past decade is that to become wealthy, you need to concentrate on the small things. Becoming wealthy isn’t something that happens overnight, and even highly-paid individuals struggle if they don’t have the right mindset.
Indeed, many high-earning individuals live from paycheck-to-paycheck because they don’t keep an eye on their money. So, with that in mind, I’m going to explain the three simple things I’m doing right now to retire wealthy.
Save before spending
When it comes to saving, one of the biggest mistakes most people make is not saving enough. To get around this problem, I save my money at the beginning of the month, and then spend what’s left over.
Tucking money away safely before you get a chance to spend it is a great way to make sure that you are saving and not overspending. It also forces you to keep a closer eye on your finances and where the money’s going. You might have less money to spend every month, but that means you’ve got more time evaluating whether or not the spending decisions you’re making are the right ones.
Invest in yourself
The best way to build wealth over the long term is to invest your money (more on that later). I’ve lost count of the number of high-earning individuals who’ve told me they just can not be bothered to spend their time trying to get to grips with investing. This is probably one of the most costly mistakes you’ll never make if you want to retire wealthy.
Today, there are hundreds of books out there explaining the basic concepts of investing, and they don’t cost an arm and a leg. There are thousands of personal finance books available online for less than £10 each. This small capital outlay could potentially be worth hundreds of thousands of pounds in investment returns over the long term and could be the best investment you will ever make. Some of the investment books I own have paid for themselves many times over.
Invest for the future
As I noted above, investing your money is one of the best ways to grow your wealth. However, many savers ignore this route because they think it’s too complicated or too risky.
The fact of the matter is, investing isn’t particularly risky if you’re investing for the long term. We don’t know what the stock market will do in one, two, or five years. But we can be sure that over three or four decades, the market will trading at a higher level than it is today.
For example, over the past 100 years, the UK equity market has returned around 5% per annum after inflation. This time frame includes two world wars, two severe economic depressions, and a handful of recessions.
Over the past decade, the Footsie 100, the UK’s leading blue-chip index, has produced an average annual return of around 10%. At this rate of return, you’d double your investment every 7.2 years, without taking on too much risk. You can’t ignore this kind of performance if you want to retire wealthy.