Secure your financial future is something that a lot of people don’t actually know how to do.
No matter how hard you try building wealth; with a negative subconscious beliefs and attitudes towards money you can sabotage your efforts and stop you from achieving the financial success you desire.
To create wealth, you must develop a healthy relationship with money.
You need to eradicate the negative money mindset.
This can be done by accepting some simple truth:
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Money is nothing more than a tool. -
Money is not good or bad. -
Money is not the root of all evil.
Money is a tool the same way a computer is a tool. Money, as a tool can be used to build wealth.
When you reframe your relationship with money, it becomes much easier to take the actions that will get you closer to reaching your financial goals.
In our society today, most individuals are interested in how to build wealth. This can only be achieved when you acquire assets.
The more assets you have making money for you, the richer you are.
Below are some of the simple tricks on how you can use money as a tool to build wealth through investing.
Compounding
Compounding is one of the most important concepts to grasp if you want to make a lot of wealth investing.
Compounding is basically when your interest earns interest. As you reinvest interest on top of interest, your investments can grow exponentially over time
Traditionally, when you invest in the stock market, your expectations are to see the price of that stock rise.
If the price rises, the value of your portfolio will increase linearly to that rise in the stock price.
If there is compounding going on and the stock is a dividend paying stock, you will eventually accumulate more shares by using the dividend to purchase more shares.
If you reinvest these dividends into the company as you go along, then there is compounding and those extra shares keep earning more and more money as you compound.
There are two different types of compounding:
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The one you earn interest over interest when you put your money in a savings account. -
Asset earnings. Either from dividends or capital gains are reinvested.
3 ways on how you can harness the power of compounding as an investor to create more wealth:
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Start investing early -
Reinvest your earning -
Manage risk
With a little bit of interest and a lot of time, compounding can help you grow your portfolio significantly.
Dividends
Dividend is a payment shareholders receive from a company’s earnings.
When a company is profitable, the management can decide to distribute those profits to shareholders in the form of dividends.
Dividends can be useful in helping you get rich. It makes your money work for you as a shareholder
Dividends paying stocks tends to provide income and potentially enhance a portfolio overall return. It’s a great way to get passive income.
Also, it’s one of the key steps in getting yourself a very strong portfolio as an investor.
Dividend comes in several forms. However, the most common is cash which is deposited into shareholders’ investment accounts.
Alternatively, instead of receiving dividends as cash, you can also opt for an automatic dividend reinvestment plan or DRIP for eligible securities.
With DRIP, dividends are automatically used to purchase additional shares. This allows you to accumulate more shares over time and can potentially compound returns.
Dividends are usually paid out via a distribution which is sort of a dividend paying schedule. This can either be annually, semi-annually, quarterly, or even every single month.
The longer you can go through this process of reinvestment time the better. Because, the compounding effect only gets stronger.
The real power of dividends investing can only be revealed on a long-time scale.
The earlier you can start investing and capitalize on this reinvestment time the better your results.
Inflation
Inflation is an increase in the price of goods and services which as a result reduces the purchasing power of money.
If you keep all your money in cash or cash equivalents, you are likely guaranteed to lose out all or part of your investments to inflation.
To beat inflation, invest some of your money in the stock market.
Overtime, the Stock market is expected to handily outperform inflation. This means that the stock market can caution you from inflation when you invest your savings in stocks.
For savers, inflation is bad as the cost of goods and services grow at a rate that is higher than the interest rate in savings accounts.
The effect of inflation actually varies depending on what type of investor you are and the type of stocks you invest in.
You should be advantageous by having stock. Because, if Inflation increases there will be an increase in price of goods and services meaning there will be an increase in profit
The increase in profits will result in increase in share price and will have a good effect on your portfolio.
This is because, the companies will have stronger cash flows due to increase in price of goods and services and can ride out a reduction in spending much easier.
It’s extremely important to keep in mind inflation while investing to be protected against the storm and perhaps even take advantage of it.
The best way to take advantage of inflation is to invest in business that gives you an advantage over inflation.
Because, good business will be able to increase the prices of goods and services. This means that the input cost increase will be transferred to the consumers.
Key takeaway
Investing is important because it significantly lightens the burden of saving for retirement while maintaining your moneys’ value against inflation.
Nothing makes saving for your finance objectively easier than starting early. This is because of the power of compounding
Take your time to learn how to save and how to invest because it could make a huge difference in how your future plays out.
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