Three Pathways to Building Wealth and My Secret Sauce
Achieving financial freedom and retiring early is a dream shared by many of us. It’s not just about having more money; it’s about having more choice, flexibility, and peace of mind. The author and entrepreneur Stephen Covey once said: Start with the end in mind. By setting a clear goal and working towards it, you can design your own version of a rich life.
Hi, I’m Felicia. I retired early from my corporate job and now live a life of financial peace. As a mum of four, I’ve learnt how important it is to build a wealth plan, that works both now and in the future. I’m excited to share three ways to build wealth, each with its own set of pros and cons.
Investing in the Stock Market
The stock market is often seen as an accessible entry point for prospective investors. A pro is that you can start with a relatively small amount of money and grow from there. I even host workshops on how to kick off your investment journey with £100.
However, the stock market is not without risks and it’s crucial to be educated before diving in. Volatility can lead to significant losses if you’re unprepared. But with the right knowledge, stock market investing is quite passive and can effectively support your wealth-building efforts, especially during retirement.
Building Wealth through Property
Investing in property is another path, but it usually requires more capital upfront. The benefit here is the ability to leverage bank funds to increase your holdings, which can lead to substantial growth over time. Properties can also appreciate significantly, especially in a stable market like the UK.
On the downside, property isn’t entirely passive. It requires ongoing management—from maintenance to managing tenants—though renting through platforms like Airbnb can make it more lucrative. While this approach involves more effort, it can be rewarding in both income and asset appreciation.
Setting up a Business
The third pathway to consider is setting up a business. The goal is to make it as passive as possible. Initially, this demands a hefty investment of time and energy, with income potentially less predictable than other avenues. Starting a business comes with risks, as many startups tend to fail.
But if successful, selling your business can give you a significant additional capital boost, which you can then reinvest elsewhere, possibly in the stock market. This approach further complements your financial independence journey.
My Secret Sauce: start early and compound
The central theme in my journey—and what I’d consider my ‘secret sauce’—is starting early. Time and compounding* have played a mighty role in building my wealth.
I purchased my first property soon after university, which appreciated over the years, allowing me to reinvest and diversify my assets.
I also leveraged tax-efficient savings tools like Individual Savings Accounts (ISAs). These help grow your savings without incurring taxes when you withdraw money from one.
Everyone’s approach to wealth creation will be unique. Investing in education before diving into any of these pathways is crucial. It’s why I emphasise attending workshops and gaining practical knowledge—understanding the landscape helps mitigate risks and shape successful strategies.
In conclusion, the stock market, real estate, and business ventures offer strong opportunities for building wealth. While each comes with its own advantages and challenges, with commitment and careful planning, they can pave the way to financial independence.
I hope this brief insight into wealth-building inspires you to take control of your financial future. Remember, the path to wealth isn’t just a straight line—it’s tailored to your life’s goals and dreams.
So, what’s your wealth-building strategy? Share your thoughts below, and if you find these ideas helpful, feel free to spread the word by sharing with friends and family.
Here’s to achieving financial peace and building the life of your dreams!
| Compounding: an example |
Essentially, anything we do in life our daily actions compounds over time. When we talk about wealth creation, savings, and investing are important. Our regular actions add to our prior actions. Eventually, they grow exponentially. Suppose you invested £1000 into an ISA savings account and it earns 10% per year. After a year your investment will be worth £1,100 (£1000 + 0.10 x £1000). By year 2 £1,210 (interest on year value of £1100 (0.10% on £1100 which is £110). Year 3 £1,331(interest on year value of £1210 (0.10% on £1210 which is £121); Year 4 £1,464 and year 5 £1,610.51. Year 10 this original £1000 investment will be worth £2,594. By year 20 it will be worth £6,723; year 25 £10,835; year 30 £17,449 and year 40 £45,259! WOW, our original £1000 investment has grown to £45,259 in 40 years! That’s the thing with compounding. It starts off so slow that you think of giving up; but then, your fruit of labour starts to gain momentum. Before you know it has grown beyond your expectations. |
