Wealth Building Foundations: What sets the Wealthy Apart from the Middle Class and the Poor?

The late Stephen Covey, author of the well-known book “The 7 Habits of Highly Effective People”, makes reference to a study that was done a number of decades ago, and yet the results still ring true to this day. He asks the question, “What sets winners apart from losers?”

The word “losers” has quite a negative connotation, so allow me to re-phrase the question in the context of this article: “What sets wealthy people apart from those who are middle class as well as those who are poor?”

Any answers, off the top of your head? They work harder? They work smarter? They had an advantage in life? All of those answers and many of the other ones are probably correct for the second generation going forward. However, what was it that set the very first generation apart from their counterparts? Those people who also started with virtually nothing just like their peers, but were able to amass an enormous net worth that they were able to use to set up their kids and grandkids and further future generations for lives of wealth and prosperity.

Now the answer is multi-faceted, and something that we will perhaps fully unpack in future articles. For now though, how about we start with the answer from the study referred to in the opening paragraph above… “The difference between winners and losers is that winners simply do those things that losers are not willing to do…”

Simple? In the context of building wealth, those who are able to build wealth over an extended amount of time, are those who are willing to do the basics that others are not willing to.

Therefore could wealth-building be as simple as Save, Invest, Speculate! In that order.

How old are you right now? Okay, don’t answer that out loud! Now add 5 to that number. In fact, add another 5. And another. And since we’re on a roll, add yet another five. The total you’re at right now, is the age you will be in 20 years’ time. It’s okay don’t stress, all of us age, but how about we get the basics back into place and set ourselves up for being much wealthier in 20 years’ time? What would you like your life to look like in 20 years? Imagine looking back at that time and remember the moment when you made the decision to be wealthy! You have the power to do so right now!

Save, Invest, Speculate!

This may appear to be too basic, too simple right? Surely we need to invest in Bitcoin to become wealthy, right? Or surely we need to start our own business (es) to become wealthy, right? Or maybe we just need to ask for a raise in our salaries, right? Or maybe government must just make it right, right? Or these big corporate companies must just give us work, right?

Even people who aren’t construction experts know that the higher you want to build, the stronger the foundation needs to be. Well, how high do want to build your wealth? How many of your forthcoming generations do you want to set up for a life of success? Well the greater your wealth aspirations, the stronger the foundation needs to be. In this case, the foundation being…

Save, Invest, Speculate!

The above should be enough to get you thinking about your approach to wealth and the way you have been going about building it. For those of who you want some more though, please read on

I believe everyone who has a job or who owns a business, wants to increase their net asset value on a monthly basis. I am yet to come across anyone who says, “I wish I earned less money than I currently do!” We are wired to desire growth, to desire a life that is headed somewhere significant. Many of the reasons for people either getting into debt, or losing money, or simply not growing their wealth, is that they have tried to bypass the age-old proven system of saving first, then investing, and then speculating. If you’ve lost money, or are currently in debt, please don’t allow any negative emotions to creep in. Tell them to get out! This article is meant to firstly simply raise the awareness, to be honest with yourself, and then to give you the first simple steps to getting back on track in building your wealth! In future articles we will continue building on a solid foundation, delving into different ways of generating more income. For now though…

Save, Invest, Speculate!

You earn the right to go to the next step, by first honouring the previous one. E.g. Do you want to invest in property (or in a second property if you already have one)? Yes? Well if you haven’t saved enough money to cover the transfer fees and legal costs, you may find your dream home slipping through your fingers. Or even if you invest in your dream home but haven’t saved enough to cover the monthly maintenance that home will end up feeling more like a burden than a blessing! Anyone know what I’m talking about?

Or has anyone invested in Bitcoin just because everyone else is doing it, without really taking the time to fully understand Crypto-currencies and Blockchain technology? If you haven’t saved enough to afford making an unexpected loss, and you don’t have solid investments in place, and you haven’t done the research and sought some expert advice, then speculating is as good as gambling! Yes, you may win, but you may also lose, a lot!

And there is also a huge psychological effect when you honour the above approach. Think about it. How does it feel when it gets closer to the end of the month and you don’t have enough money in your account to cover the upcoming debit orders, expenses, (and salaries to pay if you are a business owner)? Elevated heart rate, difficulty sleeping, anxiety or panic attacks every time your phone buzzes? Now on the other hand, how does it feel when you have more than enough money in your bank account and month end is approaching? Peaceful, cheerful, focusing on the things in life that actually matter? I think you get my drift.

So to wrap up and to make this practical for you, let’s continue to keep it simple. Please grab a pen and paper (or open up the Memo app on your phone!).

  • Let’s start by asking you, how much do you save every month? Write it down.
  • How much do you spend on necessities every month? Write it down.
  • How much do you spend on things you don’t really need, if you were honest with yourself? Write it down.
  • How much do you invest? Write it down.
  • And how much do you earn every month as a salary, whether you have your own business or are a full-time salaried employee? Write it down.

If you aren’t saving, may I ask you to start? Write down an amount, a small affordable amount that you can easily save every month – it’s not about the amount right now, it’s about building the habit. Just do so for the next three months. Save the amount, and don’t touch it, no matter what. Then continue doing so for another three months. And another three, and another. Before you know it, you will have saved for a whole year, and you will have an amount that would otherwise have gone towards who-knows-what!

I’ve spent enough time with my coaching clients to hear your objections: “What about my debt?” you may ask. “What about my monthly expenses?” you say. “I cannot afford to save”

Go ahead, try it out, what do you have to lose? Then get back to me in six months’ time with your feedback. Give me the good news that your wealth building has received the kick-start it needed. Tell me that saving is so much easier than you thought it would be. Tell me how much better you are sleeping at night. Tell me how you and your partner have stopped arguing about finances! Tell me how much you have saved and how you are already thinking about how you will be investing it. And above all, tell me that you have begun doing the things that poor people don’t like to do. And even if it takes a few years, imagine referring to the wealthy not as “they” any longer, but as “we”…

And just in case you missed it above…

Save, Invest, Speculate!

By Head of Programme Management, Property Point, Michael W. Renecke CA (SA)

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