Questions that determine if you'll ever be rich?
Big questions that determine your future wealth
The following questions should provide a good indicator as to whether you're on track to build your wealth. If your answer to all of these questions is a resounding yes and remains as a yes throughout your lifetime then you should have no problems building some serious wealth. If you want to be rich then you've got to grow your assets. Assets are your wealth and are your security in uncertain times as you can live off the income produced by your assets.
Do you put away at least 10% of your net income each month?
If you commit to automatically saving at least 10% of your after tax income on a monthly basis then you cannot fail to build wealth. You'll build up wealth even quicker if you commit to saving even more money on a monthly basis. I suggest that you start by setting up a standing order to automatically transfer 10% of your net income into a separate savings account. Resist temptation to dip into it. As you receive pay rises then slowly increase the percentage that you put into savings.
Do you save for retirement?
If you're slowly putting away a portion of your income each month into a pension then you're demonstrating discipline and adding another asset to your portfolio.
Ideally we're recommended to put away at least 20% of your pretax income each month. I'm a little more relaxed on this. I suggest that you at least maximise your Company pension matching scheme - it's free money so take it!
Do you own rather than lease?
This is simple really. If you're leasing or renting then you're putting money into someone else's pocket. The landlord or lessor will always charge a premium to the renter or lessee - that's simply their profit. Owning will generally always be cheaper.
There are occasions when you don't have the option but to rent or lease. Keep these instances to a minimum except where there is no alternative, for example, if you can't afford to buy a home then there are few alrernatives to renting. Whereas if you can't afford the latest model of the car that you love then consider buying a used car or taking public transport.
Do you have bad debt?
Good debt is debt where there is an asset attached such as in the case of a buy to let mortgage with a property investment. Bad debt is associated with assets that are rapidly depreciating such as cars. Avoid bad debt.
Do you invest?
If you're cash is simply sitting in a current account or a savings account then it is not working for you. The clue is in the name. A current account is for current daily income and outgoings. A savings account is for saving - this is not the same as investing.
To invest your cash needs to work for you. Use it to buy income producing assets: property or dividend paying shares. Currently I would recommend avoiding bonds.
Are you willing to take on risk?
You need to be willing to accept the risk that comes with investing. You won't achieve any great returns by not taking on additional risk. If you're taking a long term view then this shouldn't be an issue. Volatility tends to even out over the long run.
Do you grab opportunities?
If you have a business idea and it appears credible then be willing to invest a little and run with it.