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Seven easy rules to building wealth
Top financial advisers disclose some of the secrets to the wealth-creation success of their millionaire clients, writes LEIGH ROBERTS
Material wealth is certainly no measure of one's success in life, but the reality is, in today's world money is the warmest security blanket around. Unless you stand to inherit a fortune from your trust fund, though, it's up to you to build your wealth. And this can be done - with a change in mindset and some effort. BT Money asked 10 top financial advisers for the secrets to the wealth-creation success of their millionaire clients. We've tailored these secrets into seven rules that, in the long run, can make you rich. THINK BEFORE YOU SPEND It's so easy to fall into "must-have" mode and to squander money on faddish items. Many self-made millionaires avoid conspicuous consumption, and some are even downright frugal. There is a telling story about one of the richest (self-made) men in SA who was spotted attending a corporate launch party: when leaving the function, he made a pointed effort to walk across the ballroom and collect the promotional gift of two crystal glasses being offered to departing guests! Drawing up a monthly budget and sticking to it is a great deterrent against falling into the trap of willy-nilly spending. STEER CLEAR OF DEBT Debt is very expensive. Every rand spent paying interest on your debt is money lost. Mathematician and financial adviser Professor Karl Posel's advice is to pay off your mortgage bond as fast as you can - aim to increase your monthly repayments by 10%. "It's a bitter bullet to encounter, but it just has to be bitten," he says. Living above your means - on the bank's money - is foolish and is likely to set you firmly on the road to financial ruin. HAVE A CLEAR VISION Andrew Bradley of Fincorp says that in his experience all successful people have a clear vision of what they are working towards, whether it is financial independence or to be at the top of their industries. "People who don't have a vision just bumble along," says Bradley. GET INTO A DISCIPLINED SAVINGS HABIT The advisers tell stories of "deserving" millionaires - those people who started a savings plan, with small monthly sums, at an early age. These millionaires understood that the earlier they started saving, the more they would benefit from the magic of compound interest. Earning interest on your reinvested interest over a long period is one of the most underrated wealth creation tools. As Einstein said, the most powerful force in the world is compound interest. Ideally, you should be saving 15% to 20% of your monthly income, and this percentage should increase as you get older, says Bradley. One of the least painful methods of regular saving is to authorise a monthly bank debit order into a high-growth unit trust fund. INVEST WISELY Even a small amount of money, wisely invested, can produce astonishing returns over time, says Kathryn McCarthy of the Appleton Group. In the past 20 years, equities have produced significantly higher returns than property, gold and fixed deposits. To build wealth, you need to invest in growth assets like equities. The stock market carries a higher risk than other investments, but the volatility in returns is reduced to an acceptable level when equities are held as medium- to long-term assets. A general equity unit trust fund run by a top-rated asset management company is a good way for new investors to buy into the stock market. The advisers stress the importance of taking considered risks: a high investment return goes hand in hand with a high risk. You will never get rich by keeping your savings in a bank account that offers an interest rate that barely, if at all, beats inflation. But don't be foolish and fall for a get-rich-quick scheme - they never work. BE TAX WISE Aim to lower your taxable income and hence pay less tax. It's pretty hard for the average salary earner to tax-structure their remuneration package these days, but there are a few perks and plans which the taxman has not yet snuffed out. A qualified tax consultant can help you here. Being tax wise applies equally to your investment decisions. When you decide where to invest your savings, remember you will pay tax on your interest income (only the first R2 000 escapes it), but you won't pay tax on dividends received from equities. START YOUR OWN BUSINESS You stand a better chance of achieving millionaire status from running your own business than by earning a salary. The business owner gets more tax breaks and reaps the income from hard work, but the greatest reward usually comes when the business is sold. Beware - it's not that easy to create your own business kingdom. It takes hard work and expertise in what you do. If you aren't keen to run your own business, there is another route to wealth: exercising the share options given to you by your employer. "I've seen middle-income people become millionaires overnight," says Vernon Cresswell of Fincorp. So when choosing your next job, go for a company that's on the move and has a generous share incentive scheme. Follow our rules to riches, and polo and trout fishing will be all in a day's work.
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