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Wealth creation – The importance of a strong defence! (Part 2)

20 April 2021
Mark Friend
Property Owners, People, Estate Planning / IHT, Building a Business

This is the second in a two part series of blogs on wealth creation. In the first blog I looked at how wealth is perceived in society and how you can measure your own wealth. In this blog I will share with you my top ten tips on how to create and maintain your own wealth.

Top ten tips to building a strong defence

Here are 10 practical ways to build wealth in your estate:

  1. From the outset save and invest your money – ideally put a minimum of 20% of your income in investment vehicles. The younger you start the more wealth you will create, as this will allow time for your investments to grow. If your investments generate income themselves then reinvest this income into more investments and reap the benefits of the compound effect.
  2. Set a financial budget for yourself. Most people don’t do this but a lot of the new rich do. If you need help in personal wealth budgeting get in touch. An alternative approach is to agree how much to save each month and simply live off the balance.
  3. Don’t buy a brand new car unless you really need it for business purposes (I can think of only a few examples of business owners who really need to drive a new car to impress a client- e.g. financial advisers, possibly accountants (although for many years I drove around in a series of less than impressive motor vehicles and still do – maybe I have lost some business but I do know I have saved a fortune on car depreciation!)).
  4. Don’t just invest your money in a bank account. Make sure your savings work for you and generate income. The day the income generated from your investments covers your living expenses is the day you have really made it from a wealth position. Invest in your business, residential and commercial property, pension funds and the stock market, but keep some cash back to cover short-term liquidity issues or to exploit opportunities.
  5. Stick to what you understand, diversify and go for capital growth. If you plan to follow someone’s investment philosophy then why not look at one of the world’s greatest investors, Warren Buffett. He is not a fan of technology businesses and instead prefers to invest in businesses he understands. He never ‘puts all his eggs in one basket’ and only participates in quality investments. If you invest in high risk assets like stocks and shares it is sensible to diversify. If you choose EIS or SEIS investments only invest monies you are happy to lose. EIS and SEIS investments are hard to covert back to cash and will often fail, but they are attractive from a tax point of view and can generate fantastic returns in the long term. If you do invest in EIS/SEIS shares ensure you go small and diversify. If you invest in property, your pensions or stocks and shares always think long term and aim for capital growth. Individuals seldom make money on buying and selling shares. The investors who prosper are usually those who invest wisely and for the long term. Capital growth is the big secret of the wealthy. Each year their investments grow but with no tax stopped! As your wealth increases the annual tax you pay relative to your wealth will fall. That is why the wealthy pay little tax relative to their wealth. It is not usually because they have clever tax planning!!!
  6. Don’t overstretch on your home. Contrary to popular opinion your home is your biggest liability not your biggest asset. Your mortgage is invariably your biggest household expense. Worse still if you buy a big grand property you have to kit it out with the right furnishings, which means even more expense!
  7. Limit the number of credit cards you have. You only need one for personal use and one for business. You should probably avoid store cards for fancy shops too. By limiting the number of credit cards you have it is far easier to control spending.
  8. Don’t indulge your children (particularly your adult children) they can be your biggest expense. Teach them the habits of wealth creation. Instil in them a strong work ethic and the need to be self-sufficient. Your wealth creation is there for your security and retirement, for family events and maybe to assist your children in that deposit for a new house – it is not there to provide additional spending power for your children. Children of parents who provide little financial support are far more successful at generating wealth themselves than those who are given support.
  9. Invest in yourself and that doesn’t mean buying designer clothes! There is no bigger waste of money than designer clothes. Mark Zuckerberg, billionaire and CEO of Facebook, wears a plain grey T-shirt every day. The reason? He claims dressing in the same way allows him to focus his energy on more important decisions at work. Invest in knowledge; read books or articles about being a better leader, marketing or the latest product or service developments. Invest in you and become a better you – this will reap rewards.
  10. Pay for expert advice. Tax is an expense and that is why it is important you build a close working relationship with your accountant. Similarly, your financial advisor is key in helping you make the right investments. A great financial advisor will pay for themselves through the growth in your investment portfolio.

We hope you found this blog thought provoking. The reality is that most citizens in the UK have a terrible defence irrespective of how much they earn. Without a great defence wealth creation is possible but extremely difficult. With moderate income and great defence anything is possible as has been seen time and time again. You may be surprised to know that there are lots of Marys (see part 1 of our blogs on wealth creation) out there who are working hard, saving hard and building real wealth.

If you want advice on wealth creation, whether to set a budget, help with building your business, tax planning or needing the services of a great financial advisor then please speak to us.

The content in this blog is correct as at 20/04/2021. See terms and conditions.

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