The Seven Laws of Wealth

THE PRINCIPLES OF WEALTH CREATION AND SUSTAINABILITY!

The accumulation, utilization and sustainability of wealth calls for the application of the laws of wealth. Anyone who study and practicalize these laws will never experience financial lack. The Secrete of the Rich is in understanding and maximizing these principles! These seven laws are the guaranteed keys to financial prosperity in both personal and business affairs. For the purpose of clarification, I will like to highlight on them as follows:

1. Live on less than your income: When you live on less than you earn, you can have reserve that will help build your financial future. For both an individual and a business, the principle is the same. In a certain period (say a year or a month), if the recurring expenditures are less than the income, there will be a surplus at the end of the period. Over successive periods, this surplus (called profit in a business) grows and becomes a pile of cash that can be invested to earn even more income. This is one of the secrete of the millionaire and billionaires.

How to spend less than your income

• Save a fixed percentage of your personal or business income every period. Ten percent of all you earn is yours to save. Eating that ten percent is the first step to your financial grave.

•   If for any reason your income falls, then reduce your expenses accordingly.

• All payments that are not investments (those that are not acquiring assets that will earn future income) are expenses and should be deducted from your income in measuring your surplus.

• Understand the difference between expenditure and investment. Expenditures are recurring payments that do not create wealth in the future. These should be deducted from your income to determine your surplus or profit. Investments are assets paid for to earn future income. They should be bought only with your accumulated surplus from past periods plus investment borrowing. Spend your time, intelligence and money to acquire wealth. Never at any instance place yourself under a condition that will force you to acquire liability. Every liability will limit you financially, but every asset will help you to create viable financial empires that will forever liberate you from the common position of lack and want. Do not eat your tomorrow today!

• The lower your expenses compared to your income, the larger your surplus and the faster you accumulate wealth. Money spent belongs to somebody else thereafter. Money saved still belongs to you.

2. Live by a budget: Those who live by the principle of budgeting shall always enjoy financial flexibility. But those spend carelessly shall suffer in pain. A budget is a written plan of where you want yourself or your business to be financially in a future time. It lists your income and expenses for each of successive future periods (such as a month, a quarter or a year). It helps determine what your financial position will be at the end of a defined period (how much in assets you will have as a result of your income, and how much you will owe as a result of expenses and borrowing).

How live by the principle of budgeting

• Plan a budget that will ensure you achieve your savings target every month. This budget must result in a surplus /profit. 
• Start with must-do items that requires your commitment (these should be the expenses and payments you cannot avoid), and plan for optional and luxury items last.
•  Make sure your budget accommodates your needs, unexpected expenses and the pleasures that make life worth living. These pleasure budgeting should not be elaborate one, else it drain you financially.
•  Make sure your budget clearly include your ten percent tithe. He that eats his tithe eat his life, and create room for financial attack.
•   If your income always exceeds your expenses, as long as you do not borrow unwisely, your assets will always exceed your liabilities.
•  Compare your actual income and expenses with your budget regularly. Where you did not conform to the budget, explain why. Budgeting assessment is fundamental to finding out if you are digging your financial grave.
•  After explaining deviations, decide whether you need to change something about your behavior- or to adjust the budget.
•  Regularly review whether you need to adjust the budget. In all cases, your new budget must result in a surplus.
•  Sometimes, you will need to make big changes about how you live or do your business to ensure a budget that result in an ideal plan. Some decisions continue resulting in expenses long after they are made (like children, mortgages, hired staff, occupancy rent, and assets that must be maintained). Make such decisions carefully (some are irreversible), and do not hesitate to undo them to bring down your expenses when necessary.

3. Invest your surplus in honest and profitable enterprise under the wisdom of qualified money managers: There are many avenues for anyone with money to invest, but the important thing to consider is the profitability of such ventures. Money invested in an insure investment is money gone forever. As you begin to practice the laws of wealth, you will eventually, have enough surplus money to invest. Wise investments will earn future wealth and increase your income exponentially. However, on the contrarily, foolish investments will result in the loss of your hard-earned savings. Therefore, always put your savings in the care of honest people (qualified money managers) who are experts in their field and know the business they operate in better than their rivals.

How:

·        Do not invest in business that you do not understand how to profitably manager. Give your money to the experts instead.

·        Employ experts as the managers of your business. They should be the best in their field, and more knowledgeable about the business than their rivals.

·        Always invest in the market leaders in any business. Never support losers or unproven dabblers.

4. Constantly increase your earning power: Financial intelligence will help to increase your earning power. Learn all the skills and seek help from qualified quarters. Your wealth depends on your investments, your investments depend on your savings, and your savings depend on your surplus income. By preserving and enhancing your power to earn income, you guarantee your future wealth through a constantly growing surplus. Whether an individual or a business, consistently improve on the thing that people pay you for, and ensure you always offer what they value. This is a guarantee way to building a formidable foundation for wealth creation.

How to increase your earning power

·        Dedicate yourself to a profession that has a marketable skill; the skills of which people value. It is worthless excelling in something nobody will pay for. Separate your hobbies from your bread and butter (except if your hobby is very marketable). Always acquire the latest and best certifications, skills and qualifications to enhance and prove your expertise.

·         Constantly pursue and acquire the latest and best knowledge in your field. If you are running a business, always learn about the latest business technology and techniques. If you do not learn the best ways to serve those who pay for your skills or product, your rivals will do so and push you out of business. Your relevance in business is tied to your ability to deliver quality service and products that will help to solve the problems of your targeted market.

·         Always emphasize the newness and freshness of your skills, services, qualifications and products.

·         Constantly find out what people (employers or customers) value most and offer them better than your rivals. It may be the service or product itself, or the way it is presented, advertised, delivered, packaged or priced.

·         Constantly look for new parties to sell your skills or products to, new skills and products to sell as peoples’ needs change, and new ways to improve what you currently sell.

5. Never hesitate to seize opportunities: The wise seek, recognize and seize opportunities, but fools ignore and scoff at profitable problems; they see problems where they are expected to see opportunity. Opportunities abound for every person and every business. The way to wealth is to seize them when they appear. They never last for long. The procrastinator, the vacillator, the risk-averse businessman and the over-cautious investor never achieve wealth. Such people allow opportunities to come and go while they wait for the perfect time or perfect opportunity. There is never any perfect condition for a thing to be done. If things are ever going to be done you must create the atmosphere required for it to be done. Luck is simply taking wise advantage of opportunities.

How to seize opportunity

·        Opportunities by their nature are often unplanned. Do not let a strict adherence to a plan blind you to unexpected opportunities. Be open and flexible to new chances to grow rich. Be ready to change your plan and budget rapidly.

·        There can be no wealth without risk. But if you invest in wise experts and hedge against risks, wealth is the certain result.

·        Procrastination and hesitation are the enemies of wealth. If an opportunity arises and it meets the criteria of a wise investment, do not hesitate or give weak excuses as to why now is not the right time. Opportunities are like smoke- they will soon be gone. They are like a pretty goddess; they do not have time for procrastinators. And when you decide you are ready for them, they will not be there. Over the lifetime of a person or business, there are always more than enough opportunities to create wealth many times over- but most people let them go by.

6. Hedge against the risks of life: Life and business are full of hazards that threaten your investments with failure, and your income with loss. But there is no risk that cannot be hedged against. The risk necessary to create wealth must be accompanied by actions to keep those risks under control. The person skilled in hedging need not fear to sow the seeds of wealth.

How to hedge against the risks of life

·        Diversify your investments. Invest in assets that are unrelated (i.e., not exposed to the same risks), so that it is unlikely they will all suffer loss at the same time. Do not put all your eggs in one basket. That way, if one investment fails, the rest will remain to preserve your wealth.

·         Avoid the lure of super profits. It is a universal law that the greater the profit to be made from a venture, the more risky it is. That is, the chances of failure are much greater than the chances that the super profits will be made. Many fools have lost their wealth gambling on ventures that promised sudden, massive wealth. If it is too good to be true, it probably is not a profitable business. Invest in a number of ventures with modest returns rather than one that promises to make you rich overnight. It is more profitable in the long run to invest in 100 different businesses that bring in 1% profit on a steady basis than to invest in just one business that brings 100%. The wisdom in this is that one business that brings 100% profit will make you suffer financially if the market for that business collapses.

·         Obtain insurance against disability, sickness, legal liability, costly accidents, disaster and misfortune. Unexpected misfortune can ruin the unprepared and make nonsense of the best plan.

·        In any venture, enterprise or investment, always identify the worst that can happen- and put in place a fallback plan to help cushion your business. Plan for the best case, most likely and worst case scenarios concurrently. The equation of life must be properly balanced. In such case when bad luck befalls (as it often does), you will be prepared.

·        If there is a risk that a source of income (a professional skill, product or service) will no longer be valued by those who pay for it, develop another. If the risk is high that an asset will lose its value, sell it quickly and invest in another asset (but avoid panic selling or a short-term hunger for profit).

·        Where possible, pool resources with other people also looking to invest. There is strength in numbers, and sharing risks is a good hedging strategy. If you invest alone, in the event of loss, you will suffer alone. Where many invest in a venture, each will lose only a little if the venture fails. Where only one invests, he will lose everything. However, as good as this may sound, it is important that you take into consideration the type of people you are including in your partnership team. The right team will increase strength, but the wrong team will only produce completion and failure.

7. Borrow wisely: To expand your business and secure your financial viability, you must use other people’s money. However, unwise borrowing is like a deadly pit in which the careless borrower falls into and struggle all the days of his or life trying to get out of. Nothing destroys wealth as surely and completely as foolish borrowing. No man is too skilled, and no business too wealthy, to be undone by excessive debt. It is easy to get into, and difficult to get out of. Debt creates a seductive and dangerous illusion of wealth- it is easy to forget that the day of repayment must come. Never lose sight of the fact that the borrowed money you are spending does not belong to you. The owner will demand it back one day- and usually with interest. Will you be able to oblige him? What will you have to sacrifice to do so?

How to Borrow wisely

·        Never borrow to incur expenses you cannot normally afford out of your income. If your budget (which results in a surplus) shows that deducting a proposed expense from your income will result in a loss, than do away with it. Avoid borrowing to meet persistent needs.

·         However, if the expense is within your income for the period, short-term borrowing may be okay to compensate for a delay in the receipt of your income (because a customer has not paid his debt, or your monthly paycheck has not come in). But it is preferable to put a little cash aside for such eventualities, than to rely on borrowing.

·         Never borrow at interest to purchase assets that lose value. Consumer products bought on credit do not generate income, and they lose value. The debt does not reduce however, and the interest must still be paid, so the result is assets that are worth less than your debts, and an increase in your expenses (with no corresponding increase in your income). This is the basis of bankruptcy.

·        Never borrow at interest rate that is too high. High interest rate will frustrate your business. It will place too much load on your business, and you will end up working for nothing.

·         Borrow at interest only to acquire investments that will:

•  Increase in value to become more valuable than the debt.
• Earn income greater than the interest on the debt.

·         Preferably, borrow only a minority portion of the cost of the investment (not more than one third). The majority of the price should come from your accumulated surpluses. Keep to this rule, and you will never borrow excessively.

·        Borrow to save yourself expenses, and thereby increase your surplus. But only do so if :

1. The saving from the investment is greater than the interest,
2. The asset will increase in value to become greater than the debt. For this reason, it may be wise to borrow to own a home rather than pay the expense of rent, or to install a more efficient machine to reduce maintenance expenses- as long as all the other conditions for wise borrowing are met.

The seven laws of wealth are sound financial counsel that every rich man or woman of ages past had employed to make them rich. This is also the principle that will enthrone any would be millionaire, whether personally or business wise. Take your time to thoroughly digest it, for this houses your key to financial freedom. This is a wise expert counsel embedded in the foundation of wise motive.

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