A lot of people make the mistake of thinking that saving cash is enough to build wealth. However, in this day and age, you need to do a lot more than save cash to build wealth especially to hedge against the long-term impact of loss of cash value due to inflation.
"In order to build real wealth, you need to put your money to work for you in different ways over the long term."
When your money is working for you, it has the opportunity to grow over time in ways that will not happen in a traditional savings account. These days, savings account interest rates are so low they barely keep up with the rate of inflation and so if you have extra cash outside of your emergency fund or money that you need for the short term, you should seriously explore other avenues to grow your money.
In addition, if you were to look at the profile of people who have grown their net worth to 7 figures or more, you'll find that they all invest their money in one way or the other and investing is what has allowed them to build their wealth.
So in what ways can you build real wealth?
You need a well-diversified portfolio in order to successfully build wealth and below are 4 categories to consider p.s. number one is a must and should definitely be one of the categories you select:
4 Ways to build real wealth
- Liquid assets (cash, certificates of deposit etc)
- Equity Investments (stock, bonds, and funds e.g index funds, exchange-traded funds etc)
- Real Estate (rental property)
- Small Business (your own business or as an investor)
The easiest way to allocate your money across these categories is to use percentages e.g. 25/25/25/25 or 20/30/30/20 depending on your comfort level.
The sky is always falling somewhere and having a well-diversified portfolio will hedge against any short-term losses (Ever heard the saying don't put all your eggs in one basket?). In addition, in order to build real wealth, you need to commit to being consistent and disciplined.
Automating your savings and equity investments is one way of being consistent. The combination of setting goals with intent, keeping them visible and having an accountability partner is how you can stay disciplined.
Remember before you put your money anywhere make sure you understand what the investment is by doing your research. Also, keep in mind that building wealth requires a long-term strategy - it does not happen overnight, it takes time. So start today.