5 Basic Rules to Create Wealth

1. Spend less than you earn:

This is the first Rule that you must do if you want to create a considerable amount of wealth. Many people spend first and invest what is left. This is in comparison to the rich, who invest first and spend what is left. Each time I start a savings plan I always make a spreadsheet to keep track of my progress. I put the words in bold and underlined over the top "Invest first and spend what is left.” If you can grasp this first basic rule you are well on your way to creating wealth. Many people believe that they will have to cut back on their living standards if they want to save a considerable amount of money. I don't agree, I believe that if you start out small, at lets say 5 or 10% of your income, and increase this amount gradually over time, you will barely notice it at all. It is a bit like a government budget. Some people complain that they won't be able to buy the essentials when taxes are increased, but we always seem to find a way to have enough money to buy everything that we need. We adapt and make slight changes, and before we know it we forget about the extra deductions.

2. Make your money work as hard as you do:

The real secret of financial success is the rule to make your money do the work, so you don’t have to. This requires accumulating enough investment money so that the growth and earnings can free you from future financial worry. I think simplicity is the answer here. Low risk investments over a long time has historically been the best way to create wealth. You don't have to gamble your money on high risk stocks or buy property while the prices are low and hope that they rise to create your fortune. Simple compound interest is the real secret.

Here is a great example of compound interest at work:

Start with one penny and double it every day.

Within one month, the power of compounding will have made you over $1 million dollars.

.01 + .01 is .02. .02 + .02 is .04, and so on.

It is only when we continue to add to our original amount that we start to see the miraculous power of compounding.

.04 + .04 is .08. (Day 3)
.08 + .08 is .16.(Day 4)
.16 + .16 is .32. (Day 5)

Believe it or not, by day 27 you will have accumulated $1,342,177.20.

3. Make sure your money is working for you, and not against you:

Just as your money can work very powerfully for you if you make the right decisions and stick to a plan of regular investing, making wrong money decisions can be hazardous to your path to success. One classic example is credit-card debt. If for example, your hard earned cash is making you between 5 and 10% interest per year through investments, this is wiped out if you are paying 14.5% interest on your credit card debt. Start paying off the credit card bills first. I believe that you should clear them and cut them up. Instead, Create a small savings account for any emergency purchases.

4. If you don't see it, you won't spend it!

If you take a look at your wage slip, you will notice that there are deductions before you get to the total that you can lodge into the bank. Money set aside for wealth building should be treated in the same way.

If your company offers a retirement plan, try to sign up for the maximum possible contribution. It will be taken out of your salary automatically. ( if your company matches all or part of your contribution, failing to join a plan like this is like walking away from free money)!

If you do not have an opportunity for automatic deductions to a company savings plan, then you should seriously think about creating your own automatic savings plan. At the very least, see if your company will deposit your wages directly into your bank account.

5. Create savings goals:

Set goals that will inspire you. However, never set a goal that you cannot control. Your goal should not be dependant on your employer giving you a big raise, or getting gifts of money. The goals should be reachable by your own efforts. As a part of your goal making exercise, you should have a clear target of how much you want to save and why you want this amount. Jim Rohn said "When the whys get stronger the hows get easier". You should also break your savings goal down into the amount you will need to save every week and then every month. You also might need to invest in yourself by acquiring more skills so you can qualify for a job that will pay you more.

Start off with these 5 basic rules to creating wealth, and you will be on the right path to building a wall of financial security around yourself and your family.