When it comes to building wealth most people look in the wrong areas. They look for fast and supposedly easy ways to create wealth. Most of these are a road to ruin, not a road to riches.
Whilst there are arguably many keys to wealth creation, I want to focus on the number one source of wealth creation that has worked throughout time.
What is the No.1 Source of Wealth Creation?
It may surprise you but the number one source of wealth creation is:
SMALL BUSINESS
Yes, that’s right – small business. The media gives you the perception that you need to work on Wall Street or become a Fortune 500 CEO in order to earn enough to become wealthy, but this is nothing but a myth.
People getting up each day and going to work and creating new products and services that advance our society is what creates wealth. Let’s look at a few modern examples. The famous Steve Jobs started Apple Computers in his childhood home. Facebook was invented in a university dormitory. Apple computers became the most valuable company on planet earth at one point. These businesses both reflect human creativity and ingenuity as well as the wealth creation that comes from entrepreneurialism.
Once again the perception of society is that wealth is in big business and those two examples may give you that impression, but remember they have only existed for a very short time and started as micro businesses. In most wealthy societies 70% of people that work are employed by small business.
Small Business is the Winner!
A great book called ‘The Millionaire Next Door’ written in 1996 by Thomas J. Stanley & William Danko explored the American population over a 20 year period to determine who the wealthy were in American society. Their results were fascinating. Aside from Wall Street employees and CEOs, the other group that people often perceive as holding substantial wealth is those that inherit wealth. What Stanley & Danko discovered was that these groups all hold only a small portion of the wealth in society and that the main group by far was the small business owner – that is the millionaire next door.
What was also interesting was the characteristics of this group. The common qualities and behaviors were: they lived beneath their means, they were not caught up with buying things for status, they worked hard and ran their own businesses. They often lived in humble homes and drove second hand cars.
The point is simply this – wealth is created with human creativity and as Christians we have a relationship with the ultimate creator, the creator of the universe! When we depend on God and seek his guidance, in business as in other areas of life, then the likely outcome is an ability to build wealth. After all the ability to build wealth comes from God (Deuteronomy 8:18).
But Alex, I’m not in Business!
Not everyone is called to business, let alone their own business. So for those of you reading this who are not in business, here are some principles to build wealth:
• Save 10% – If you have a job then there is a good chance you are able to save money. The best principle to adopt here is ‘live beneath your means’. I recommend Christians live on 80% of their income as a rough guide. 10% is to be given to God and 10% towards long-term savings. Live off the remaining 80%.
• Let it Compound – Albert Einstein described compound interest as the ‘greatest math’s discovery of all time’ and the ‘8th wonder of the world’ and for good reason. It works! Check the example below:
In the example above, you start out with an original capital of $10,000 and save an additional $500 per month. We also assume an interest rate of just 5% per annum (compounded monthly). After 30 years it builds up to be valued at over $450,000.
But what if you achieved a higher return – say 10%? In this case the value of the investment would reach over $1.3Million. The combined benefit of saving and a reasonable rate of return means that anyone even with a modest income can build some degree of wealth. Naturally it is not about accumulating wealth that is never to be used, but building wealth for a purpose. That purpose being to advance God’s kingdom!
• Start young – wealth creation starts young. Starting to save at Age 55 once the kids have left home is not going to allow you to benefit from compound interest. Wealth creation should start the moment you get your first job.
• Invest it for the long-term – when purchasing assets one of the priorities is to invest in high quality businesses (stocks) or properties for the long-term. That is you need to buy growth assets that are expected to grow over the long-term. Buying assets for short periods, i.e. less than 5 years, is unlikely to yield positive results and can often lead to negative results.
OR ALTERNATIVELY – START A BUSINESS!