Spoiler alert: the truly wealthy invest their money.
No-one has ever become truly wealthy based on just a salary. You cannot become rich by selling your time, as there simply isn’t enough of it. It is essential, therefore, to harness sources of wealth generation beyond your own limited personal resources of time and energy.
The best way to do this is to invest your capital and ensure that it grows. If you switch spending for saving and then invest that to maximise the returns on the investment, you will be able to create real wealth. And more, it will generate a passive income for the rest of your life.
Equities is the asset class that has outperformed all others in the long term and the smart money is, therefore, invested in shares. If that’s what the smart money does – shouldn’t we all be doing the same thing, at least in part? Shouldn’t we all be investing at least some of our money in shares if they give you the best potential returns?
Increasing your basic understanding of investments will make you more comfortable with the managed risks involved in well diversified investments and give you the opportunity to share in the growth of the economy.
Could we say that money represents our efforts, our time and energy, the best years of our lives? If that’s true then how much time and energy do we spend figuring out what to do with that money once we've got it? Apparently not enough. Most people will never be financially independent – because we don't know how to handle money.
Does your money work for you or do you just work for money? Or to put it another way, are you working smart, or just hard? While, no-one has ever become truly wealthy by just earning a salary, there are many people who have only been salary earners who have become truly wealthy in their own right. They never owned a business. They were never the MD or the CEO. They simply knew what to do with their money once they got it.
Take a R100 note. What do you see? A servant, perhaps, that could work for you for the rest of your life, and then go on to work for your children, and your children's children? Spend that R100 and someone else gets to make that choice.
If you never get your money to work for you, you will always work for money. If you don't learn to work smart, you will always have to work hard.
What is financial independence and what does it mean? If you had no debt and had enough money to be able to live off the interest for the rest of your life at the standard of living that you want, then you would be financially independent.
Is that impossible for the average man or woman? Is it a dream? Is it pie in the sky? No it’s not. This should be one of your major financial goals, and if you are not consciously working toward that goal you won't achieve it.
While you are working, you need to save a little each month so that by the time you stop working you will have enough to last you for the rest of your life, and you can live off the income from that capital. That's the essence of retirement planning.
It is possible for every one of us to achieve this goal if we learn what to do with our money once we've got it. We might spend 12 or 15 years or more listening to teachers and lecturers tell us how to earn money, but we learn precious little about what to do with it once we've got it.
So, do not be passive in your finances, do not take a brainless approach expecting others to think for you. Nobody else has as much interest in your money as you. Ask, learn and empower yourself to make the very most of your money that you can.