Why do some people build substantial wealth during their working lives while others struggle to get ahead? It's tempting to think the answer lies in how much they earn, but it’s not that simple. Attitudes towards money, financial habits, and the ability to think long-term can be just as important.

Wealth creation rarely comes from a single brilliant investment decision. More often, it results from decades of good habits: spending less than you earn, avoiding unnecessary debt, investing regularly and reaping the benefits of compounding investment returns.

There are three main ways to create or acquire wealth:

1. Saving money from earned income, which is then invested
2. Borrowing money to set up a business or buy property (a home or investment property)
3. Windfalls such as from a lottery win or an inheritance
   
   

The secrets of successful wealth builders

Successful wealth builders tend to be disciplined savers. They are willing to sacrifice the pleasure of spending money today to build wealth to spend later. But building significant wealth through saving alone requires either a high income or a very frugal lifestyle.

Yet a high income doesn’t guarantee high wealth because it can come with high spending. On the other hand, saving alone doesn’t guarantee wealth either, because you must invest saved money successfully to build wealth.

Successful wealth builders are prepared to take on risk to increase their wealth. They have a long-term perspective and are prepared to ride out market fluctuations rather than react emotionally to short-term losses. They also know how to use debt to their advantage to improve their return on investment. Debt used to buy investment assets such as businesses and property can multiply wealth to levels that exceed what’s possible by saving alone.

The role of homeownership

Homeownership has played a big role in building household wealth. Those who bought property decades ago have benefited enormously from rising house prices. Meanwhile, those who have spent much of their lives renting have struggled to accumulate assets despite being equally disciplined with money.

Protecting your wealth

Building significant wealth requires several skills and attributes, but protecting it is also important, an aspect people often overlook. Successful wealth builders know to protect themselves from situations and events that can destroy wealth. This includes physical loss, illness, relationship breakdown, legal action, changes in legislation and a host of other factors.

When wealth is acquired suddenly, such as through a lottery win or an inheritance, protecting it is especially important. Those who acquire wealth from others, rather than building it themselves, often lack the confidence and skills to make the right financial decisions with it. This can lead to wealth being lost over time. Professional advice can help avoid this situation.

Don't let your investment balance become a success scorecard

The ultimate purpose of building wealth is surely to create financial security, independence and freedom of choice. Yet wealth can become a scorecard, with success measured by an ever-increasing investment balance rather than the quality of life it provides. The challenge is recognising when the time has come to change financial priorities.

Building wealth requires the discipline to save and the knowledge of how best to invest. Enjoying retirement requires the confidence to spend. True financial success means knowing how to do both.


The advice given here is general and does not constitute specific advice to any person.

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