How do I build wealth?

How do I build wealth? This is a question that I receive a lot in my line of work. I'd like to start off  with a story that I first heard a couple of years ago, and then found again recently while I was searching for it to refresh my memory (source: http://bit.ly/1BvEZ2g); it goes like this:

"There was an old nomad named Ahab, who had wandered lost in the desert for about four days. He had run out of food and water and had decided to give up. As he laid his face down in the sand, expecting death at any moment, a voice boomed out of the sky, calling his name. The voice asked, “Ahab, how would you like to have all the clear, cool water you can drink, and all the fruits and nuts and berries that you can eat? Ahab replied, “I would love that. But where would I find that here, Voice?” The voice said, “Ahab, you just have to trust me. Get back on your camel and ride four miles due east. You’ll come over a sand dune and you’ll see all the cold, clear water you can drink and all the fruits and nuts and berries you can eat.”

Ahab decided this was his only chance—to believe the voice. So he struggled to his camel and got on it. Just as he was about to take off, the voice yelled out, “Oh, Ahab, when you get there, you’re going to see a lot of rocks, a lot of stones. I want you to fill your saddle bags with these rocks and stones.” Ahab didn’t understand why this was important, but to find this oasis he was willing to agree to anything. Then the voice added, “Ahab, when you wake up tomorrow you’re going to be really, really happy, then you’re going to be really, really sad.” This made no sense to Ahab, but he continued on his camel four miles due east.

Sure enough, he came over a dune and there it was: a beautiful oasis, with all the cool, clear water he could drink and all the fruits, nuts, and berries he could eat. He jumped off his camel, drank to his fill and ate as much as he could eat. Then he remembered that the voice had told him to pick up rocks. As he looked around, he saw acres and acres of grey stones. Good for nothing rocks. This made no sense to Ahab, so he picked up two of the stones, put them in his pocket, and fell asleep. He woke up the next morning in the desert sun, and as he stretched he remembered the voice said he was going to be really happy, then sad. He didn’t feel either way. But then he looked out over the oasis and saw that all the water and food were gone, and so were all the rocks. He reached into his pocket to look at the two rocks he had collected, and as he pulled them out they turned into diamonds. He looked at them and said, “Wow! WOW!…”“Oh, NO!”"

So, what lessons can we take from this story that relate to building wealth? I believe there are two. The first, which is most important when trying to build wealth, is what does wealth mean to you? Is it monetary? Is it water in your glass and food on the table? Or is it simply having an abundance of things which make you happy? Before you try and build wealth, you need to find the answer to this question, and work backwards. For this article, I assume the definition of wealth for most people is monetary assets.

The second lesson is the power of advice. There aren't many wealthy people today who have never sought or currently don't seek advice, either from family, or a group of advisors with whom they work closely. I bet most of the people in this country who call themselves independently wealthy, seek (and listen) to the advice of professionals they trust and respect.

While understanding what wealth is to you and seeking professional advice are both important, meaningful steps to building wealth, the real secret is very simple and summed up in a recent article by Sarah Milton in her retirehappy.ca post, Financial numbers you really need to know:

"Pay yourself first. Spend less than you earn. Track your spending. Put your money to work".

Simple. Clear. Precise. If I could add one more key to that, it would be commit to consistency. If you follow those simple rules and commit to them over time, it's hard to go wrong. And there are added levels of commitment that can help you build on this foundation. I cannot understate the importance of professional advice which can help answer questions such as:

• How much do I pay myself first?
• How do I track my spending?
• Where and how do I put my money to work?

Seeking professional advice will help you create a financial security plan to help build wealth, not only today, but in the future when you need to access it or if you wish to leave a legacy.

It will also lay the groundwork that cover the what ifs:

• What if I pass away; will my family be okay?
• What if I cannot go to work; will I still receive an income?
• What I become very ill; will I have money to pay the medical bills?
• What will happen to my business and/or my employees?

I believe one of the most over-looked areas of planning, is a financial security plan to help protect your wealth. It is very important, should be part of the plan, and is complimentary to your success in building wealth. You and your ability to earn an income are your greatest asset. You'll leverage your ability to earn an income over time to build wealth. If you're tying to build wealth, why wouldn't you help protect the asset that creates it?

In summary, find your definition of wealth, create goals to accomplish this, pay yourself first, mind the budget, put your money to work, and help protect your greatest asset. Oh, and once you're wealthy, stick with the plan. It would be a shame to throw it away.