To generate wealth over time, you need to make money and invest it. On top of that, you should not lose money. As Warren Buffet once said, "Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1." Here are a few money hacks to follow for long term success:
Create a budget: Creating a budget is important to track the money that you earn. Create a budget by calculating the money in and out of your accounts. A lot of times, small spends like dining outs can add up to large amounts over time. First, calculate essential expenses such as housing and food. Second, put some money aside for emergencies. Finally, invest the rest of your money.
Get rid of debts: Debt is like a liability that consumes the money that you make over time. Replace debts with assets to generate money for you over time.
Don't quit your job to start a business: Many entrepreneurs quit their job to start a business. Creating a business is difficult, and there is always a possibility of failure. There should always be a backup plan.
Create a financial plan: There might be a misconception that financial planning is only for the rich. No matter your financial situation, careful financial planning can put you in an excellent position. Creating a financial plan is necessary for independence and freedom. A well-organized plan is a guarantee to achieve long-term financial goals, such as saving for retirement.
Invest and employ the compounding effect: You can generate a lot of wealth by investment and compounding effect. Compounding refers to the process of reinvesting assets and their generated interests for exponential growth over time. The compounding effect is a great investing strategy employed by famous investors like Warren Buffett to build wealth. The compounding effect has a direct correlation with time. Meaning that the earlier you invest, the more profits you will have. Therefore, it is more important for young investors. Even with a small investment, in the beginning, there is a huge upside potential over time. Money growth over time depends on three parameters. How much do you invest in the beginning? What is the rate at which your investment grows? How long do you wait (time factor)?
Diversify your investment portfolio: Diversification is the allocation of different asset classes in your investment portfolio. In other words, never put all your money into one investment class. This is considered one of the long-term strategies to avert financial risks. To better diversify your portfolio, invests in assets that are not correlated to each other in terms of performance. For example, stocks tend to perform better during economic growth. On the other hand, bonds and gold perform better over a recession and economic downturn. In addition to picking different asset classes (bonds, stocks, etc.) for investment, invest in different industries. A few examples of industries with long-term potential are Artificial Intelligence (AI), cryptocurrency (digital money), the Internet of Things (IoT), self-driving cars, and 5G technologies. Furthermore, pick stocks with the different market capitalization (small-cap and large-cap) and different dividend ratios. For example, in the cloud-based storage industry, invest in both Dropbox and Google.