Savings is an important first step along the wealth creation path. Saving is the result of consuming less of your disposable income. This can be accomplished when we clearly understand the difference between our needs and our wants and are disciplined enough to cover our needs and delay our wants. We need food, shelter, clothing and companionship to survive. Just about everything else is a “want,” and our wants are essentially endless. If we are serious about saving we have to make choices about which wants to fulfil.
Savings can be held in a number of ways. We can deposit money in a bank account, keep it under the mattress, pay down debt or invest. The return on the savings held in a bank comes from interest and results in an increase in wealth. Money under the mattress results in no interest and does not increase wealth. Paying off debt increases one’s disposable income and thus allows for an increase monthly savings.Investments
Investing is putting money or capital to use, in order to gain profitable returns, as interest, income or appreciation in value. Investing sometimes results in bigger returns. Money invested in assets such as bonds, shares, property or currency, has the potential to grow much faster than money on deposit.
When venturing into the investment arena it makes sense to talk to an investment expert. A qualified financial adviser will know the investment market inside out and is the best person to help you find an investment solution that fits your circumstances. Another approach would be to join an investment club. Investment clubs can be a great way to get your foot in the door and learn about the process as well. These groups comprise individuals who meet on a regular basis for the purpose of pooling money and retail investing.
It is worth noting that investments involve an element of risk to your capital. If you are contemplating investments as a means of creating wealth, you should consider your financial goals as well as your attitude toward risk and reward. In addition, it is important to understand the power of diversification. Diversification involves spreading investment across a range of assets, such as shares, bonds, property and cash.
The next step toward creating wealth is to unleash the entrepreneurial spirit. An entrepreneur can be described as someone who works for him or herself. Explore opportunities to start your own business. Starting a business can be as simple as selling baked goods to co-workers, offering yard cutting service to neighbors or establishing a babysitting service. In selecting new businesses we are only limited by our creativity and our ability to innovate.
In this article we have examined three methods of wealth creation. Firstly, the importance of saving was outlined. Having accumulated savings you can then invest in stocks and securities and finally, you can start your own business. We should seek to pass on wealth to the next generation by teaching savings and wealth creation values to our children as early on in their lives as possible.
This article was submitted by Mr Anthony Galloway, Assistant Managing Director, Internal Audit Unit, St. Kitts-Nevis-Anguilla National Bank Limited, as part of the activities commemorating Financial Information Month, October 2012, celebrated under the theme: Challenge Yourself. Innovate-Compete-Succeed