Convert Your Salary Into Wealth

There is no formula to determine how much wealth is enough, or how much income is needed to build wealth. It depends on the individual. High earners tend to have higher lifestyle expectations than those on lower incomes. They must therefore save more, and invest more, to generate the wealth they need to maintain their lifestyle during retirement. The danger for this group is that high wages can lead to a false sense of affluence, resulting in big spending on lifestyle but little set aside in savings.In order to start building wealth, a proportion of after-tax income should be saved regularly. Some financial advisers suggest a goal of one-third.

A top salary will not ensure a secure retirement if saving habits are poor. To set aside a third of after-tax income each month might seem an impossible target, but even saving as little as 10 percent can create a decent stockpile of cash for investment over time.

There are many ways in which household spending can be curtailed in the pursuit of wealth—even the smallest changes can be significant when continued year after year because any reduction in spending can be invested in savings. Setting and sticking to a budget will help meet savings goals. Other savings strategies include:

• Setting financial goals, such as buying a house or funding a masters’ degree.
• Drawing up a spending plan for expenditures such as housing, food, transportation, and debt repayments.
• Monitoring budgets weekly or monthly to keep track of spending.
• Deciding on a percentage of income to save each month, and setting up a direct debit for that amount to go straight into a savings account.
• Finding cheaper accommodation, or refinancing a mortgage to achieve a cheaper rate.
• Comparing insurance rates and switching to a cheaper insurer; comparing deals from different energy suppliers to cut utility bills.
• Shopping with a list to eliminate impulse buys, and buying in bulk in order to take advantage of cheaper prices or sales.

Unless they inherit a large sum of money, or win it in a lottery, most people need to rely on creating wealth through savings. The formula is simple but requires patience and discipline. The amount of money going out each week or month (outgoings) must be kept lower than the amount coming in (income) over the same period, and the difference should be saved and invested as soon as possible.