Looking at nice cars and houses and mentally claiming them was something we used to do as kids. We would also say how rich we would like to be. Having grown up, there’s the realisation that there’s something greater than just being rich. Wealth!
In order to understand the concept of wealth building, there should be a clear understanding of the differences between being rich and being wealthy.
In this post, we’ll explore what “building wealth” means and how it can be achieved.
What is the Difference Between Rich and Wealthy?
“Rich” generally refers to a person who has a high income or a lot of money. It is often associated with material wealth and a luxurious lifestyle, but it does not necessarily indicate a person’s long-term financial stability or security.
For some people, being rich may mean having enough money to afford basic necessities such as food, shelter, and healthcare, while for others, it may mean being able to live a luxurious lifestyle with all the trappings of wealth, such as a large home, expensive cars, and frequent travel.
“Wealthy,” on the other hand, typically refers to a person who has a significant amount of assets, such as stocks, property, or investments, and therefore has a high net worth. A wealthy person may not necessarily have a high income, but their accumulated assets provide them with financial security and stability.
This table gives specific pointers that shows you’re either rich or wealthy.
|1. Usually, earn, spend, and repeat.
|1. Usually works, earns, invests, and reinvests.
|2. Sees money as a source of enjoyment and pleasure; tends to work all their life to fuel their lifestyle.
|2. Make their money work for them. Usually makes more money in the long run.
|3. Sees investments as a short-term vehicle that brings returns for spending.
|3. Sees investment as a long-term vehicle that gives financial freedom. It is mostly used as a safety net.
|4. Spends mostly on wants rather than needs.
|4. Spends mostly on their needs rather than their wants.
Now don’t get this all twisted, not that wealthy people do not enjoy the good life, but they enjoy the good life while making their money work for them. They are so strategic about their spending that it feels like everything is an investment.
Now that you know these differences, where do you belong? It’s advisable that you are super honest with yourself, as that’s the only way you can learn and grow.
What is Compound Interest?
This is the interest you earn on the money you save, plus the interest you earn on the interest you’ve already earned. In other words, it is the interest earned on the principal amount as well as on the interest that has already been earned. This results in exponential growth of the invested amount over time.
For example, let’s say you invest ₦100 in a savings account with a 5% annual interest rate. After the first year, you will earn ₦5 in interest, bringing your total to ₦105. In the second year, you will earn 5% on the new total of ₦105, which amounts to ₦5.25 in interest, bringing your total to ₦110.25.
As you can see, the interest earned in each subsequent year is based on the new total, which includes both the original principal and the accumulated interest.
Now, calculate these with higher funds. Mind-blowing right!
Compound interest is often called the “eighth wonder of the world” because it has the power to grow your savings and investments at a faster rate.
Strategies Used to Take Advantage of Compound Interest
Here are some strategies that you can use to take advantage of compound interest:
- Start early: The sooner you begin investing, the longer your money has to grow. Even if you begin with a small sum, compound interest will help your investment increase substantially over the years.
- Avoid withdrawing early: If you withdraw money from your investments before they’ve had a chance to grow, you’ll miss out on the benefits of compound interest. Try to avoid withdrawing money from your investments unless you absolutely need to.
- Choose investments with higher interest rates: The higher the interest rate on your investments, the faster your money will grow. Look for investments with high rates of return. A good platform for investing is Havvest.
Remember, compound interest is a long-term strategy. It takes time for your investments to grow, but by being patient and consistent, you can take advantage of the power of compounding and grow your wealth over time.
Identifying Financial Instruments That Offer Compound Interest
The best financial instruments that hold the propelling engine to build wealth over time include:
- Saving: this refers to the act of setting aside a portion of one’s income or resources for future use rather than spending them immediately. It is the process of not consuming all of one’s income and putting a portion of it towards future goals or emergencies.
In this case, our emphasis is on saving for investments rather than for emergencies. A platform where you may save with interest is Havvest. I mean, not your usual!
- Investing: Compound investment is the best way to build wealth over the long term. When you invest, your money earns returns, which are reinvested and earn further returns. Over time, this compounding effect can significantly increase your wealth.
No doubt, compound interest is one of the most powerful tools available to those who want to build wealth. When we reinvest our earnings, we ultimately allow our money to grow, thereby experiencing exponential growth.
However, compound interest only works if you start early and invest regularly. That’s why Havvest is the ideal platform for those who want to build wealth through compound interest. Save and invest with Havvest today—the smart way to build wealth!