Many people define wealth according to different aspects. For some, wealth is an abundance of material possessions or money, while for others, it is attaining a desired lifestyle. Regardless of the criteria, it is essential to realise that being wealthy has a mental aspect to it. Having a ‘millionaire mindset’, as some may put it, is what drives people to set their minds to achieving goals and working to see them come true.
For Paul Smith, Touchstone Education co-founder, being wealthy is more than just a change in lifestyle or attaining financial freedom; it’s an accumulation of assets over time that generate income, allowing individuals to live on passive income. He contrasts this to accumulating liabilities that deplete wealth rather than build it.
Touchstone Education helps students create wealth by using profitable investment strategies. Once they start to witness the results, the team helps individuals develop a millionaire mindset that enables them to maintain their wealth.
Sustainable wealth creation is made possible by keeping in mind the following aspects:
Earnings
Many people rely on a single source of income, but to gain wealth, the experts at Touchstone Education recommend at least four income streams. Just as a three or four-legged stool is much more stable than one with two legs, having multiple income sources can provide financial stability.
Indeed, if one source were to encounter difficulties, an individual would have three other streams to rely on. Examples of income sources that investors can consider are:
- Property: It is estimated that property investors in the UK make up a tiny percentage of the population. Many of them are ‘accidental landlords’, meaning they probably did not purposely plan to own property. Additionally, many landlords in the UK have a single property, with less than one percent having multiple properties. While other investment opportunities exist, an investor keen on building sustainable wealth should consider property investment.
- Trading Business: A trading business is one that an investor owns but operates independently of the owner. Whether this is an online store or retail shop, the business should have a management team capable of handling operations.
- Liquid Assets: Liquid assets gain value over time and can be quickly converted into cash. Examples include mutual funds, shares and stocks. These assets are vital when an investor needs cash or wants to take advantage of a business opportunity and requires finances to facilitate the transaction.
- Pension: For most people, saving into a pension scheme is a means of securing their financial future, especially when they transition into retirement. Having a Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS) is one way of setting up intergenerational wealth that can be passed on.
Spending
Expenditure is another major aspect of wealth creation, with experts suggesting a thoughtful approach to spending. The advice from Touchstone Education is to assess expenditure carefully and particularly consider spending more on assets than liabilities. This not to say that people should deny themselves unnecessarily; they should take care of their needs. However, when it comes to wants, the recommendation is to purchase these from surplus income.
Savings
A methodical savings approach can help individuals create wealth steadily and securely. Such an approach encourages people to save first and spend what is left. Saving towards a target amount helps retain focus and investing in assets can help grow the savings pot much faster.
For the determined investor, the wealth creation journey is one that will also have its share of risks. While these are inevitable, a smart individual will only risk what they can afford to lose. Having an investment strategy that diversifies assets and spreads risk ensures the investor does not have all their eggs in one basket.