8 Tips For Building Wealth – Forbes Advisor UK

If your goal in life is to get rich, perseverance will be essential – unless, of course, you scoop the lottery or come into an inheritance.

Our guide includes the following eight tips that highlight ways to pursue financial security:

• establish financial goals
• deal with debt
• create a cushion
• start investing
• diversify your portfolio
• boost your income
• consider FIRE tactics
• avoid ‘schemes’.

However, bear in mind there are no shortcuts or secrets to building wealth. Instead, we believe the path to getting rich typically involves spending less than you earn and being smart about saving and investing as much money as you can.

1) Establish financial goals

If you’re thinking about getting rich, it’s important to define what ‘rich’ actually means to you.

Is your plan to become a billionaire business titan? Or perhaps all you want to do is build up a pension that will ensure you have a comfortable retirement.

Once you have set your financial goals you can progress to drawing up a plan to reach them.

Doing this allows financial targets to take shape, even at an early stage. Here are some key questions:

• Are you planning to start a family?
• Will you need to meet school/further education fees?
• What major purchases are you fantasising about? Second home? Classic car? Art collection?
• When do you want to retire?
• What does retirement look like? Travelling? Downsizing plans?
• What are your arrangements for passing on your wealth?

Answering questions of this sort will help you to map out financial goals and decide how much money you need to save to meet your earlier definition of ‘rich’.

The next step is to draw up a budget – a detailed plan for spending, saving and repaying debt – that lets you get to work on your plans. If you think of your finances as a house, then your budget can be regarded as its foundation.

Creating a realistic budget involves a careful review of your finances that takes into account your financial habits and goals.

2) Deal with debt

Managed correctly, not all debt is bad. But if you’re planning to get rich, it’s worth bearing in mind that high-interest debt – for example, that generated when credit and store cards are only partially paid off each month – may present barriers to achieving this dream.

When drawing up a budget, one of the most important considerations is to dispense with bad debt as soon as possible. That means identifying the debt that’s costing you the most and trying to eliminate it first.

At the same time, consider whether you’re managing other forms of what might be described as ‘good debt’ – the mortgage, for example – as effectively as possible. Are you on the most competitive rate, for example?

Once debts with the highest repayments rates are paid off in full, the idea is to roll over subsequent payments to tackle the next most financially damaging loans and pay them off.

Although it can be tempting to speed up paying off lower interest debt such as a personal loan or the mortgage, think again. Focusing on paying-off higher interest debts first means you’ll likely save more in the long run. Only once that’s achieved is it time to turn to items such as the mortgage.

3) Create a cushion

Establishing a rainy-day fund can be an essential component of any strategy for boosting your wealth.

This emergency fund should contain readily-available cash held in low-risk savings, with enough tucked away to shield you from having to take on high-interest credit card debt in times of financial need. This might be paying for major car repairs or funding essential spending such as fixing a boiler breakdown, for example.

4) Start investing now

If we’re talking about growing wealth, it’s not usually enough just to save money in an account. To potentially get rich, you will likely need to make your money work harder. For some people, the way to do this is by investing in the stock market.

Investing – using money to generate a profitable return – is not for everyone, however. This is because it carries with it the risk of partial or total loss of capital (except, usually, where holdings are kept as cash).

Historically, the return on stocks and shares – going back more than a century – has outstripped that of other asset classes such as the interest payable on cash on deposit.

But remember that past performance is not a reliable indicator of future results.

Before channelling cash into the stock market, however, would-be investors should weigh-up whether investing in shares is definitely for them – and, if it is, to ensure they do it in a sensible and secure way.

One popular way to start investing is by opening an account with an online trading platform. DIY investing is booming. But remember that making your own investment decisions requires you to research the options and monitor your performance.

Learning how to invest is not a simple task, but the time to get started is as soon as possible. This provides your contributions with the longest possible timeframe for growth.

Holding your investments in an individual savings account or ISA means that your money is ring-fenced from tax – an extra way of providing a boost to your wealth.   

If you don’t feel comfortable making your own decisions, a suitably-qualified financial advisor or wealth manager can help with recommendations. But this will cost more than going it alone via an online investment platform.

A middle option could be to consider using a so-called robo-advisor. This is a halfway house between DIY investing and seeking out full-blown financial advice.

Before taking the plunge with any form of stock market-related investment, consider asking these five questions:

• Should I seek financial advice?

• Am I comfortable with the level of risk involved and can I afford to lose money?

• Do I understand the investment in question and, if necessary, could I get my money out easily?

• Are my investments regulated?

• Am I protected if my investment provider or advisor goes out of business?

Tax treatment depends on one’s individual circumstances and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of tax advice.

5) Diversify your portfolio

There’s no such thing as risk-free investing. But with the help of tactics such as diversification – where investors spread their holdings across a range of asset types including shares, bonds, and cash – many of the risk factors can be mitigated, hopefully smoothing a path towards financial success.

When you’re younger and have more time to build wealth, you can consider taking riskier investments because there is likely to be more time to recover from the inevitable market declines that take place from time to time.

The older you get – and the closer you are to your definition of ‘rich’ – is when you should consider shifting to less risky assets to preserve the wealth you’ve already built up.  

Rob Morgan, chief investment analyst at wealth manager Charles Stanley, time is an investor’s best friend: “Never underestimate the power of even modest investments early on in life. 

“There is no need to shoot for the moon. In fact, a more measured and disciplined approach is likely to be more sustainable and reliable over the longer term, than chasing the latest investment fad or fashion.”

6) Boost your income

The more money you earn, the faster you’ll likely achieve your goal of getting rich. Boosting your earnings potential today helps to build a virtuous circle of earning more, investing more and getting closer to your goals.

Some ways to boost your income is by looking to progress from your current position, or even to consider a career change which better values your skills and competencies. Ways to up your earnings include:

• Document your achievements, then use them to strengthen a request for a pay rise
• Seek out mentors to help you build the skills you’ll need for higher-paying positions
• Improve your skills through classes or additional education
• If the above steps aren’t realistic, consider a career-change and a job with better prospects.

Beyond one’s primary career path, consider increasing earnings by starting a small business or temporary side hustle.

7) Consider FIRE tactics

The ‘financial independence, retire early’ movement – FIRE – could be something worth learning about if the aim is to get rich quicker sooner rather than later.

Supporters of the FIRE approach to investing aim to cut all expenses by as much as possible to maximise the amount of money available to invest. Instead of spending money on, say, car loans and insurance, for example, a FIRE follower would forgo owning a vehicle and channel the savings into his or her investment portfolio.

This is an extreme example, but some of the movement’s rules of thumb – such as the ‘rule of 25’ – can be a useful financial guide. This rule suggests that individuals save 25 times their annual expenses before retiring early. For example, if you spend £30,000 a year, you’d need to build up a savings chest worth £750,000.

8) Avoid ‘schemes’

There’s a reason why the phrase “get rich quick” is usually followed by the word ‘scheme’. That’s because there are vanishingly few ways to get rich quickly, and anyone telling you otherwise is probably trying to defraud you in a scheme.

As we’ve outlined above, getting rich means knowing what you want and having the discipline to do what it takes. It may take time, but it’s both doable and worth it in the end. Make a plan, stick to it, and you’ll spot the progress when you take the right steps to build wealth.

By the same token, if someone whispers that they are on to a financial “sure thing” that “cannot lose”, walk off in the opposite direction without delay.

Remember that nothing’s for certain, few things happen as quickly as you’d like, and getting rich is typically the reward for a plan that’s been well executed – with patience and perseverance.