Investment and wealth accumulation

Know what you want and how to get it.

When you set out to accumulate wealth, it is important to differentiate between a portfolio that suits your personality and one that reflects your personality.This is a small but vital distinction. A portfolio that suits your personality is one that allows you to achieve all your goals, whether it is to retire young, pay for your children, tuition or go on an expensive overseas trip. This is obviously a good thing.

If you enjoy adrenalin rushes and taking risks, a portfolio that reflects your personality would probably consist entirely of high risk investments into companies and ventures that few people have heard of. While there is certainly some space for a personalised approach to wealth creation, tossing out tried and tested wisdom could end in disaster. There are many things we can do in life to get the pulse racing. Managing your hard earned life savings with a band on should not be one of them.

The aim of your investment lifecycle is to progress from earning a salary to being rich, then wealthy. Wealth in this end means that all your assets and investment are generating more money in any given month than you spend. In other words, you can stop working and still have more money at the end of the month than at the start. People who work well with their money are able to-do this at retirement. The aim of a wealthy creation strategy is to get to this point as soon as possible. When this stage is reached, you are able to decide whether to continue working, retire, change career and do something that makes you truly happy. Becoming wealthy can be one of the most liberating experiences in your life.

Of course, many people are miles away from this ideal, and studies suggest that over 90% of the population would be bankrupt if they missed three months paycheque. Creating wealthy can therefore be a painful process which explains why not everyone can end up being wealthy, but it is certainly an undertaking that could have a major impact on your life in the longrun.

The first step towards creating wealth is to earn more than you spend and use the extramoney to start building an investment portfolio. As easy as it seems, it is amazing how often human nature gets in the way of taking first step. Evidence shows that where people get a pay increase, they tend to raise their standard of living, instead of increasing their savings. The decision to put off raising your standards, especially over the first number of years of your saving strategy, could be a significant contributor to wealth that you would not believe you are capable of on your salary.

This of course means drawing up a budget and seeing how much you can realistically save each month. Even deciding to cut down on grabbing a beer on the way after work can make a massive difference. The first few months can be spent ironing out the budget, as unforeseen cost have a habit of taking larger bites out of your pay check than you may imagine.

To ensure that you do not dip in to your savings everytime you itch to buy something new, it is best to set up a separate account for your investment savings. Choose a bank and a savings plan that allow you to set up an additional account as well as move money between accounts at low charge.

Now that you are out of the starting blocks, you can start working on establishing your portfolio. At the start, it would probably not be wise to purchase stocks every month, as you will be saving small amounts and each time you purchase shares you pay brokers fees. It would be better to save the money in the bank and buy at six months intervals, for instance.

From the outset, it is important to write down clearly what you wish to achieve with your savings.This plan has to be revisited at least once a year. You may find that you are not putting away enough money quickly enough to reach your goals or realise that more things get enough to reach your goals or added to the list as you get older. This can be addressed by further cutting your spending. Or more ideally, increasing your income. The good news is that when you purchase your first shares, you are already earning additional income because of growth and dividends.The trick is to find ways to boost your income and with it your rate of investment.

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