Now that you are controlling your expenses and continuing to set aside 10% to pay yourself, it is time to put your 10% to work. The discipline we have learned by controlling our expenses and paying ourselves 10% of our earnings is a major factor in the wealth building process. Because it is the gains on the 10%, that will ultimately build your fortune. 1
Establish An Emergency Fund
I believe that before we begin investing that we create an Emergency Fund. An Emergency Fund has two components. The first is to build the fund to $1,000.00 to cover the unexpected expenses that arise outside of your budget. And you should do this as soon as possible. The next component is to grow the fund to have three to six months worth of your living expenses as defined by your budget. Once your savings account has grown to that level, then, and only then should you begin investing in other types of wealth building methods.
Your Wealth Grows by the Magic of Compound Interest
Your emergency fund should be left untouched as you explore and consider other investment plans to begin multiplying your money. Wealth increases by making wise investments over the years, and consistent growth realized through the magic of compound interest.
Invest In Only Things You Know
Here is a crucial principle, invest in only “things” you know. There are many investment options available but to invest in anything that you do not have a knowledge of could be a mistake. There are stocks, bonds, commodities, annuities, mutual funds, certificates of deposit (CD’s) and the list goes on. We should not invest in anything we do not completely understand. Also, we have to figure out that there are no “fool proof” investment options, and there must be a complete understanding of what can go wrong and how you can get your money back should the investment opportunity go South.
Don’t Put All of Your Eggs in One Basket
One of the key points to minimizing the risks is to diversify by placing your investment funds into many different areas. Diversification is a term that means don’t put all of your eggs in one basket. Diversification can minimize the losses associated with the ups and downs of the marketplace.
Compounding Interest the Key to Building Wealth
Remember the “rate of return” on each investment is essential to the wealth building process. Invest your money in ways that will ensure your investments will multiply by taking advantage of the compounding interest we earn from our investments. Compounding interest is the key to making our wealth multiply.
Earnings on Investments Grows Wealth
Arkad said, “The gold we may retain from our earnings is but the start. The earnings it will make shall build our fortunes.” So the third lesson teaches us to put our money to work so that it may produce a “stream of wealth that shall continuously flow into thy purse.”
In Lesson 4 Clason teaches us how to guard our “treasures against loss.” It entails the importance of protecting your money from loss by seeking wise counsel and using their wisdom to protect yourself from unwise investments. Go to the blog post entitled “Guard Thy Treasures From Loss.”
### Larry Marvin
LifeCrafter – Money $ense
- ©2016 Larry Marvin, Image Credit:https://http://lifecrafter.org/wp-conntent/uploads/2016/06/2438119267_710c645784_o.jpg ↩