Eight Lessons to Building Lasting Wealth
Most people think that wealth is about how much you earn, or what material possessions you own like the type of car your drive, the size of your home, or about getting rich quickly but its not. You can measure wealth in several ways, the first being Financial Wealth, owning assets that grow over time and have the potential to provide you with enduring income. By creating more income than you need you create Financial Freedom and therefore Time Wealth. Irrespective of how much money one has, you can create Physical Wealth (Health) and Social Wealth (our network of friends and family or spirituality). Money alone doesn’t make us Wealthy, it’s the combination of all of these things.
The path to financial freedom doesn’t start with making millions; it starts with creating smart spending habits and strategic investing. In this post, I’ll break down seven essential principles that can help you build long-term wealth, regardless of your current income level.
But first let’s dig a little more into the concept of Financial Wealth versus the illusion that many of us have about Wealth and riches; just to make sure you truly understand the concept.
Financial Wealth vs. the Illusion of Wealth
We’ve all seen people who drive luxury cars, live in big houses, send their children to private schools and wear designer clothes. But does that mean they’re rich? Not necessarily. Many high earners live paycheck to paycheck because they spend as much as (or more often than not, more than) they make. Financial Wealth isn’t about material possessions or appearances—it’s about creating financial security and freedom for yourself and your family to live your life the way you want.
A key principle to remember is that real wealth is measured by financial independence, not by material possessions. If your lifestyle requires you to keep working indefinitely, then you’re not truly wealthy—you’re just maintaining an expensive lifestyle. If you can live a good life and don’t have to rely on a pay check week to week or month to month; then you have created real wealth for yourself. The Smart Money Dumb Money Blog is dedicated to helping you creating Real Wealth and Financial Freedom.
Principle 1: The Power of Smart Spending
One of the biggest obstacles to building wealth is our love for spending. Many of us fall into the trap of lifestyle inflation—this means increasing your spending every time you earn more money or simply because you see others with bigger houses, fancier cars, and expensive gadgets and want the same. Why wouldn’t you? There is nothing wrong with treating yourself for the hard work you do but if that treat, prevents you from putting some of your pay increase into long term savings then you are not using it to create wealth for yourself, you are actually hurting yourself in the long term.
To avoid this cycle, it is important to start prioritizing long-term financial security over short-term pleasures. Below are some examples of billionaires making smart spending decisions:
Drive a reliable, fuel-efficient car instead of an expensive luxury vehicle.
Warren Buffet, one of the world’s richest men, still (2024) drives his 2014 Cadillac; he prefers to buy used cars sold at a discount than new ones that lose value quickly. This mindset of not overpaying has been a key factor in his success as an investor. He seeks value in all aspects of his life, not just in business or investing.
Buy a home you can comfortably afford, not one that stretches your budget.
Tim Cook, the CEO of Apple lives in a 2,400 square foot, 4 bed condo in California. Its not much for a man who earns more than USD3 million a year and USD 100m in performance related bonuses.
Focus on experiences and investments rather than material possessions.
Sir Richard Branson, the founder of Virgin Group, is synonymous with boldness, creativity, and an unrelenting spirit of adventure. At the end of the day, what will you remember, the shiny new car that you bought or the adventures and memories created with friends and loved ones by creating financial independence for yourself.
Principle 2: Avoid Debt Traps
Bad debt is one of the biggest wealth killers. Many people finance their lifestyles with credit cards, car loans, and short term borrowing that exceeds their ability to pay. While some debt (like a mortgage for a house that falls within your budget) can be beneficial. Preventable debt or ‘bad’ debt like payday loans can keep you financially stuck for a significant time.
A good rule of thumb: If you have to finance it (except for a house or education), you probably can’t afford it. Before taking on any debt, ask yourself:
Is this a need or a want?
Will this purchase increase in value over time, or will it depreciate (go down in value)?
How will this impact my savings and ability to reach my long-term financial goals?
Example: Avoid buying depreciating assets -bad debt
One of the quickest ways to waste money is by buying brand new cars straight from the dealer. Vehicles depreciate in value rapidly, an new cars bought from the dealer lose money the moment you drive off the lot. Studies show that most millionaires don’t drive luxury cars; they drive modest, reliable vehicles.
If you’re in the market for a car, consider:
Buying a used vehicle that’s a few years old instead of a brand-new one.
Paying in cash if possible to help you negotiate a better deal, or choosing a short-term, low-interest loan.
Looking for cars known for reliability and fuel efficiency.
Most importantly, do not lease if you can avoid it, when you lease a car your essentially renting it at its original purchase price, at the end of the lease you have no ownership in the car, while if you owned the car you would be driving it rent free.
Example: Investing in yourself – good debt
Investing in yourself on the other hand is one of the most impactful ways to use debt responsibly. By channelling borrowed funds into education, professional development, or even starting a business, you’re not just spending money—you’re strategically positioning yourself for long-term growth and success. The returns for such investments can far exceed the cost, such as increased earning potential, personal fulfilment, and broader career opportunities. Furthermore, personal investments often come with other benefits, such as enhanced self-confidence, broader networks and resilience (social wealth), which can pay dividends in all aspects of your life.
Principle 3: Set a clear financial goals
This is where it starts getting difficult, this principle requires discipline, but its entirely achievable if you are able to follow some key rules.
If you really want to generate enduring wealth, you need to think about what having wealth will mean to you. Remember Wealth and Savings are two different things. Building wealth will eventually provide you with financial independence, it will mean that you don’t need to depend on your pay-check, while savings allow you to put some of your pay-check aside to spend on shorter term goals likes saving for a downpayment on a house or paying for a family vacation. The golden scenario would be creating wealth such that it allows you to achieve all your spending goals.
So be specific with what are you really trying to achieve, break down your needs into short; medium and long term goals, is it saving for a family vacation or a car or is it creating lasting and enduring wealth. Keeping this question in your mind each time you write a goal down will help you prioritise your needs and wants. [Take a look at the following blog posts to learn how to turn your goals to reality.]
Principle 4: Leverage the power of compounding and time
The earlier you start saving and investing the greater the likelihood that you will reach your goals. Consider the following example:
Year 1: You place $100 in a bank account and receive 10% interest.
At the end of the year, you will have $110, which is your original saving of $100 and $10 interest.
Year 2: Lets say you leave the $110 in the bank account and receive the same 10% interest.
At the end of the year you will have $121, which is your original saving of $100, last years interest of $10 and this years interest of $11 which includes $1 of interest earned on interest.
This concept of interest on interest is known as compound interest, each year you will earn a bit more interest because you are earning interest on interest. The table below shows just how this might work if we left the same $100 in the account and received a constant 10% interest per year for 10, 20, 30 and 40 years.
Year 10: If you haven’t touched this investment and the interest rate remained at 10%; by the end of Year 10 you would have $259.37 in the account, more than 2.5x your original savings!
Year 30: This is where is gets interesting, your $100 would be worth $1,744.94, your money has worked for you over time, a single small investment has snowballed. That’s the power of compound interest.
When Warren Buffet decides to buy something, he not only compares prices with the next best alternative but he also considers whether he really needs it. Urban Legend suggests that when once asked why he went to a barber 30 minutes away and paid $18 for his hair cut vs someone closer by who charged $30, he retorted “do I really want to spend $300,000 on a hair cut”? Firmly reiterating that money not invested, never grows!
Now imagine, you put aside $100, every year for the next 30 years, with the same 10% interest per year. The outcome of putting $3,000 aside would be $19,839 or close to 6x the original investment. Waiting another 10years, and it would be worth more than 10 times the original investment!
Imaging what you could earn if you put more aside? We will tell you how in the following blog posts!
Principle 5: Create a budget for yourself
But how do you start? How do you find that fist $100 to put aside?
Well this is as simple or as difficult as tracking your income and then all your expenses, it sounds pretty easy doesn’t it? And it should be, but this step is one of the hardest because it takes time and dedication to keep track of every penny earned and spent.
This step should not be underestimated or skipped. It will help you understand if your creating or destroying personal wealth every month and how long it will take you to reach your financial goals. If you see your bank balance rising or falling each month; this step will also tell you why.
To start a budget, grab your bank and credit card statements for a typical month, list out your expenses and group your expenses into the following buckets:
Fixed Expenses: These are regular, recurring expenses that don’t change much, like rent/mortgage, utilities, insurance, and loan payments.
Variable Expenses: These expenses can vary each month, like groceries, clothing, gifts and transportation.
Discretionary Expenses: Non-essential expenses, like hobbies, subscriptions, dining out, entertainment and vacations.
Debt Interest Payments: List out all debt interest payments with the interest rate next to them, remember interest payments can rise and fall.
By taking note of all these expenses, you will quickly get a sense of where your hard-earned income is going. Subtracting these expenses from your after-tax salary will give you a sense of how much you will have left over at the end of the month.
The next step is to purposefully consider which expenses you really need and which are wants – by thinking like Warran Buffet, by eliminating some costs, as little as $10 or $20 a month, you could saving thousands in the long run.
We will talk more about the process of budgeting later in the blog and provide you with some simple tools to use.
Principle 6: Don’t let your emotions get the better of you
The route to creating enduring wealth will be bumpy, life will get in the way, but like the fable of the tortoise and the hare, being consistent with your budget, setting achievable milestones along the way with corresponding rewards for yourself will help you meet your goals.
The real key here is not to allow your emotions get in the way of making good decisions.
In my early career, I used to track how retail investors would invest in the markets, nine times out of ten, the average investor would put more in the stock market as it rose and then pull out their investments during market corrections, leaving them worse off that when they started. The smart investors would use this information to understand when to get out of the market and when to begin buying again. The name of this blog, smart money dumb money is derived from that experience; by reading this blog and learning from the mistakes of others, you will quickly learn how to be the smartest investor in the room.
Principle 7: Start Early
Spending wisely is just one part of the equation. To build lasting wealth, you must invest your savings. As we have shown above, the earlier you start generating a return on your savings, the more you benefit from compounding—the process of earning interest on both your original investment and the interest. Starting early can have a very profound impact on your total wealth.
Even small, consistent investments can lead to significant savings growth if left to compound long enough.
Principle 8: Educate yourself – don’t pay others to do what you can learn to do for yourself.
Read as much as you can to learn about creating wealth, reading this blog is a great start but you must try and expand your knowledge by reading books by reputable authors to give you a sense that what you are doing is right. Never believe just one source of information, cross check and decide for yourself who you want to trust.
If reading is not your thing, consider signing up for a course on financial wellbeing, or talk to a close friend who you trust. The one message I am going to repeat throughout this blog is (i) get rich schemes exist to part you from your hard earned money, any schemes that you see on social media or through messaging apps are scams and (ii) most financial advisors who suggest you should buy ‘expensive’ mutual funds will likely become far richer, far faster than you. Learning how to invest in a low risk, low cost way will be the most profitable way to creating enduring wealth.
Creating Income for yourself: The 4 percent rule
How do you turn the investments you have or will create into enduring income? Research suggests use of the 4% rule as a guideline. It suggests that savers can withdraw 4% of their retirement savings in the first year of retirement and then adjust that amount for inflation each subsequent year. This approach aims to provide two things (i) a steady income stream and (ii) preservation of your original investments / savings – something I call enduring wealth.
What exactly is enduring wealth? Quite simply it means investing in assets that will provide you with ongoing income to replace your current needs. It can help create financial freedom and more importantly the space for you to live the kind of life that you want to.
Many people assume they need millions of dollars to do this comfortably, but you don’t. You need to save enough so that what you spend is easily replaced by the long term growth of the asset. The key number to remember is 4%. Financial planners suggest that if you can live off 4% of your investments annually, your money will very likely last a lifetime. If you only need the income for say 20years, you can consume much more than 4% of your investments, we will talk more about this later in the blog.
For example, if you need $20,000 per year to cover all your expenses, you should aim to create an investment portfolio of $500,000 ($20,000 ÷ 4% = $500,000). By investing wisely and thinking like Warran Buffet you can build this portfolio over time without needing a massive salary. If you don’t need the investment portfolio to last forever, you can use more than 4% or simply save less!
Sacrificing 1 coffee a week at $4 would save you $208 a year, removing a streaming subscription at $20 a month would save another $240 a year. Putting just $500 aside for 10years (a total of $5,000) at 10% interest, would give you around $100,000, that’s enough for a downpayment on a house or and additional income of $4,000 a year for life.
Final Thoughts: Live below your means and grow rich quickly
Building wealth isn’t about luck or having a high-paying job—it’s about making smart financial decisions every day. By controlling your spending, avoiding debt, and investing consistently, you can achieve financial independence and live life on your own terms.
Remember:
Spending less than you earn is the foundation of wealth.
Avoid unnecessary debt, especially for depreciating assets.
Invest early and consistently to take advantage of compound interest.
Financial independence is about having the freedom to choose how you spend your time, not just about having money.
Are you ready to take control of your financial future? Start today by evaluating your spending habits, cutting unnecessary expenses, and setting up a simple investment plan. The sooner you start, the sooner you’ll be on your way to true wealth.