Managing your wealth is about balancing out long-term desires and short-term needs. Cash is not king. Cashflow is king.
Over the last few months, I have spoken to several clients where the advice was focused on getting them through the short term with rising inflation and increasing mortgage repayments. While this comes at a cost to long term wealth creation, it was necessary for their immediate health and well-being.
There are three main phases when managing your wealth.
The first phase is actively growing your wealth. This usually coincides with when you are buying your home and raising a family. The earlier you start with this the better you will be in the long run. However, it is important to understand your own limitations and educate yourself, so you know what to do and what not to do. Whatever you do, always make sure you have sufficient cashflow to live comfortably.
There are several ways to turbo charge your wealth creation. You can limit your spending to the essentials. While saving is crucial, I personally don’t agree with taking it to the extreme. Life is too short, and it is important to do the things you want to do. If that means keeping your motorbike or going out with friends, find a way to do it.
When building your wealth, it’s important to manage your debt wisely. Limit your bad debt, don’t overextend yourself, and where possible, only use debt to buy assets that are likely to grow. Sometimes, it might be necessary to move to interest only to manage short term cashflow needs.