Top Wealth Building Tactics
The following post is a summary of a recent Instagram live I held. If you would prefer to watch the video replay, you can do so here.
The formula for wealth creation is simple - you have to have more money coming in than going out, save the difference and put those savings to work.
It doesn’t matter if you are earning a 6-figure salary, if your day-to-day consumption costs are equal to or higher than what you make, you are never going to build the wealth you need or create options and flexibility for yourself.
Mindset plays a big part in building wealth. If, like me, you were brought up under the false pretence that wealth is something other people have, you need to change this and believe you are worthy of abundance.
This isn’t the same as feeling entitled, but rather, if you are respectful of but not obsessed by money, it will come to you. The role of your money story and scripts you have created for yourself is a topic I go into a lot of detail about in my forthcoming new book.
To kickstart your wealth creation journey, or spur you further along it, I’ve outlined some practical ideas below. Not all of these will be suitable for you but the key thing is to get your creative wealth building juices flowing.
“The formula for wealth creation is simple - you have to have more money coming in than going out.” Tweet This
Bonus or Salary Sacrifice
If you are employed, you can opt for a salary or bonus sacrifice in favour of a pension contribution. If you do decide to do this, make sure you get your employer to add the employer’s National Insurance that they don’t have to pay, on top of the contribution. So, for example, if your employer pays you a £1000 bonus, they have to pay £138 in National Insurance. But if they put the £1000 in your pension instead, then they don’t have to pay this; combining it with your pension contribution means they are no worse off but you end up with £1,138 in your pension. With the increase in NI (for health and social care) announced this week, this tactic will be even more attractive.
Consider Remortgaging
If you have a mortgage, why not remortgage? Even if you are on a fixed rate deal and there is an early redemption penalty, it might still be better for you to remortgage because rates are so low at the moment. You could put the extra money into investments, build up your savings pot or over pay the mortgage to increase your equity (the difference between the value of your property and what you owe on the mortgage).
Rent A Room
If you have a spare room in your house, or a room you don’t use that has bedroom potential, you could rent it out. Since the Rent a Room Allowance allows you to receive up to £7,500 per annum tax-free, it’s a very lucrative money-making option which is often overlooked.
It might even make sense to buy a new home that has an extra bedroom that you could rent out, with the tax free rent a room income effectively paying any increased mortgage.
WFH Reloaded
If you have some sort of outbuilding on your property, why not convert it into work space? The rise in people working from home post-covid is likely to remain in one form or another, and not all people have a constructive environment to do this from their own home. There could be tax implications with renting outbuildings, but a good accountant can help you avoid the pitfalls.
You could even rent a property in your local area for the purpose of renting it out again and return a decent margin. You’ll need to check things like permissions but this offers a relatively low risk way to generate additional inncome.
Tell Your Employer What You’re Worth
The UK labour market is very tight right now. Hospitality, logistics, tech, construction and care staff are all desperate for staff.
If you are an employee, you need to make your employer aware of your value. You need to lay the ground for higher reward - a bonus and/or a salary increase, share options, higher pension contribution, private health insurance, more time off, or whatever reward you think you deserve - by starting a conversation with your employer.
You want to get your employer to agree that you are a valued and high performing employee. You also want to get a general understanding of the form (salary, bonus, pension etc.), basis (what you have to have achieved or delivered) and timeframe when you will have earned your increased reward.
Even if it only comes to fruition some months down the line, sow the seeds now. That makes it easier for your employer to adjust budgets and win internal approval.
In the meantime start looking about for a new job where your time is sufficiently compensated for, so that if your employer doesn’t deliver, you are able to change job to one that does.
Help To Build Scheme
You have probably heard of Help to Buy, but Help to Build is a new initiative to help people who want to build their own home. A key benefit of this new scheme is that you’ll avoid the 15-20% premium over the house value that arises under the Help to Buy scheme. This means your property will be worth at least what you paid for it and highly likely to be worth more.
The government will lend up to 20%, a mortgage company will lend up to 75%, and you have to come up with 5%. But it is done in stages.
Details are still be announced but you can register with the Self-build Portal.
New Property Development Rules
Most properties have permitted development rights, unless they have been taken away by the local authority or it is a listed building. There has been a recent change to the number of floors you can add to your property, as well as a change to extension rules, all without the need to apply for planning permission.
Adding to your existing property can add significant value and avoids the costs of moving.
Visit the Planning Portal for more information.
Classic Cars
Anyone like cars? If you’ve followed me for a long time, you’ll know I’m not crazy about cars personally. However, if you are a petrol head and you have sufficient storage space, there is something to be said about buying a classics car.
The value of some classic cars has rocketed over the past 10 years and the uplift is tax free, as long as it’s not part of a trade.
By no means is it a retirement strategy, but if you have a knack for spotting the next classic car, this could be an interesting idea to you.
Rent To Live, Buy To Invest
The personal finance guru, Ramit Sethi and property guru Grant Cardone are big advocates for choosing to rent your own home and then buy property as an investment. So if you own a house, you could sell it and release the capital or, if you have built up a deposit for a house, you could continue to rent and buy an investment property with that money.
As with everything, there are risks, but this is a genuine wealth creation strategy. Plus, renting the property you live in also means you are outsourcing all of the upkeep and repairs costs to the landlord and you can move about more easily.
Startups
Consider investing in a startup. Not all businesses will be a hit but if you research thoroughly and invest consistently across the board, one or two are bound to land. Check out Seedrs to get started with this.
Trim The Waste
It might be worth sitting down and getting serious about eliminating any waste in your spending habits. If you really are trying to wring out excess money so you can save and invest more, look at your subscriptions and daily consumption habits. A big one is the food shop, which someone asked me about on Instagram last week.
Lots of us have little or no structure when it comes to this routine expenditure, even though it take a very sizeable chunk out of your income. Think about whether you could make any changes such as choosing unbranded products, buying in bulk, or avoid wasting food each week because it goes off before you get around to using it.
I’m not saying live on bread and water or having a severe cutback which you or your family are unhappy with, but be mindful and intentional. You might get more out of your existing budget with a few minor tweaks.