To build real wealth, you need to do 5 things:
- Make a lot of money
- Spend less than you make = save
- Invest what you save
- Compound your investments
- Protect your wealth
Every advice I have read from books, webinars, interviews with the wealthy boils down to these steps. These steps are not negotiable. Every advice you've ever heard revolves around these steps.
Make a lot of money
Also important to note that Rich =/= Wealthy. This is why it is so difficult to point to a lot of inter-generational wealth in Nigeria. We confuse riches for wealth. So we chase riches We think of wealth (a flow) as riches (a stock/quantity) so we try to stock up instead of creating channels. This is why when we say it starts with a mindset, we are not trying to aspire to perspire.
Once you break out of that mindset that you need to accumulate, instead you start thinking of how to convert a stock into a flow. And I do not mean how to convert your embezzling/other illegal riches into a flow. Instead, how to create channels & flows, then how to grow those flows over time, then move on to other wealth creation steps.
Spend less than you make = save
Once you've created flows/streams, then you need to curtail spending, not by living cheap but working with budgets. Cheapness can create expenses of its own because you're always fixing, repairing the low-quality stuff you bought. You can put your life at risk by being cheap.
Compound your investments
Compounding sounds like something magical but it is the real key to wealth and it is also the toughest part because it takes time. You can't bypass it, you can't run from it.
You can't have a baby in one month by impregnating 9 women. It will still take 9 months. No short cut
This is compounding: If you save N5k every month for 10 years, that's N5,000 x 12 months x 10 years = 600,000. Let's say you earn 5% every year as interest, you'll end up with N630,000 (without compounding) but with compounding (every year), you end up with N736k.
But if you compound quarterly by buying 90-day t-bills for instance (compounding means rolling over both principal and interest) then you'll end up with N786k instead
This is where it gets even more magical, If you have a higher savings or interest rate, see what happens
Let's imagine you save 10k instead every month for 10 years, still at 5%. Compounded annually, you'll have N1.550m (whereas you saved N1.2m). Compounded quarterly, you'll have N1.56m.
Not too shabby but see this. Let's imagine you save that same 5k for 10 years at 10% interest rate. Compounded annually, you'll end up with N1.01m (but you only saved N600k)
Compounded quarterly, you'll end up with N1.03m. Isn't that neat? Now imagine you saved 10k at 10% compounding quarterly?
That's N2.1m whereas you only saved N1.2m, the rest is all interest/profit you made from compounding.
But this is all numbers. Reality is expenses happen. You may be forced to take money out sooner than you think. Interest rates fall and rise. Naira loses value each year so.
Protect your wealth
That is where protecting your wealth comes in
The enemies are:
- unexpected expenses & emergencies
- Overpaying on taxes
I'm going to pause here because each step in the five I mentioned can be a whole class in itself. For instance, making lots of money is hard. Not everyone can earn a salary of N1m a month and even at N1m a month, that's not 'lots of money'.
So let's talk about practical steps. So here's what I want to do. I'll be starting a series on wealth next week on my youtube page. Dolapo Oni. Let's go on a journey together, starting from making money, with the reality of living in Nigeria
Take it from someone who has done all this:
- Printing & publishing business (Shomolu)
- Events Compere/MC
- Consulting/Business Advisory
Even while working & building a career as a financial analyst. See you in the next video.
As you were.