What are wealth creation skills

Wealth Accumulation: Earn, Save and Invest More (Guide)

by Holger Grethe Last update: April 22, 2021

Do you want to build up a (large) fortune?

Then you are right on this page.

Regardless of whether your goal is private pension provision, whether you want to give your youngsters the best possible training or just want to make the most of your money:

Wealth formation is for everyone A good idea for private investors.

But it only works if you do it right.

Don't worry, building a fortune does not require above-average intellectual skills.

It is still necessary to be high earners. You can build up wealth with little money.

It's all about getting the most out of the financial opportunities that are available to you.

Longer term Wealth accumulation takes place on five levels, all of which build on each other:

Contents overview:

You will find five useful tips for each level, making a total of 25 recommendations for action. Here we go …

In a nutshell: what is wealth accumulation?
Wealth accumulation means regularly saving money and investing it in such a way that it increases through investment income such as interest, dividends and capital gains.

Level 1: Earn more

The logic is clear: you can only invest the money you have previously saved. And you can only save if you earn more than you absolutely need to live.

Earning “good money” is the first building block for successful wealth accumulation.

Of course, the goal of earning more than today cannot simply be achieved.

But as you will see from the following five tips: it is quite doable ...

# 1 Increase your prices

Regardless of whether you are employed or self-employed - your motto should be: Good job, good money.

In theory, it is very simple for the self-employed to earn more. They “only” have to increase their prices.

But many do not dare to do that for fear of the reaction of their customers. You can learn from Roman Kmenta how you, as a self-employed person, get more for your services without losing the buyer.

If you're doing a good job as an employee, why not ask your boss about a raise!

You can find out how to successfully negotiate a higher salary in this article from the career bible.

Your employer is stubborn when it comes to raising salaries? Then try Tip 2 ...

# 2 Find better customers

Even if it sounds tough: the self-employed should say goodbye to the "bottom 20 percent" of their customers every year.

In other words, from those customers who are responsible for 80 percent of the problems - repeated complaints, exotic special requests, outrageous demands, etc.

Rather invest your time in acquiring customers with whom you really like working.

This has a positive effect on the quality of your work. Which in turn means that you can charge a higher price for it.

The situation is a little different for employees. Because they have exactly one Customers: their employer.

Finding a better customer means looking for a new job. Which doesn't have to be the worst decision.

If this step is too big for you, then check out tip 3 ...

# 3 Invest in your education

If you fail to raise your prices (your salary) or find better customers (employers) ...

... it could be because your offer is not "valuable" enough from the perspective of the customer (employer).

So think about how you can increase the value of your achievements.

What opportunities for further education and training could you use? Is higher qualification through additional studies or additional training conceivable?

Unless you see absolutely no progress in your current work environment ...

# 4 Create a second mainstay for yourself

Increasing your income through a mini job or part-time self-employment has its appeal.

Quite a few people manage to turn their hobby into their (main) profession in this way.

The advantage of a part-time job is the diversification of income. Financially, you literally stand “on two legs”.

I have been living this concept myself since 2013 (I am a practice owner and run Zendepot "on the side").

However, such a two-pronged approach is not entirely without it. It is not for nothing that it is said:

"You build wealth through concentration and preserve it through diversification."

Instead of concentrating properly on one thing, a sideline always involves the risk of getting bogged down.

In addition, two jobs don't mean little work. Which brings us to the next point ...

# 5 Don't work too much

Diligence with all due respect, but health is and will remain the basis for building up your fortune.

For a long time it is our human capital - the ability to generate income through work - that makes wealth creation possible at all.

Only later does capital assets predominate and allow the accustomed standard of living to become increasingly independent of gainful employment - keyword: financial freedom.

Of course, a high level of work leads to good earnings. At least he should.

But those who burn themselves off without a break are not only susceptible to physical and mental illnesses that cost money (stomach ulcer, burn-out, back problems, etc.)

In addition, there is also no time to deal with one's finances:

Those who work all day don't have time to earn money.

John D. Rockefeller

So divide your powers well, because you still need a few resources for levels two to five ...

Level 2: Smart savings

I don't want to spend long here with the little ones of the savings opportunities in everyday life (always buying large packs of toilet paper, changing electricity providers every year, etc.).

You can find enough articles about this on Google. I am talking about basic principles ...

# 6 Spend less than you take in

Quasi the definition of the term "saving". Because, at its core, saving means plain and simple Abstinence from consumption.

This also makes it clear why consumer credit is a mortal sin for building wealth: Because you are spending money today that you will have to earn in the future.

Building up long-term wealth understandably works the other way around: You forego consumption today in order to be able to spend part of your money in the future.

If you already have debts, pay them off as quickly as you can!

This should be a top priority before you even think about how you plan to build wealth.

# 7 Only spend money that you have

We just discussed why consumer credit is not a good idea. But you can get into the debt trap more or less unnoticed - and all without a loan agreement.

We are talking about the overdraft facility on the current account, also called “overdraft facility”.

When it comes to your account balance, just stick to the old footballer motto: "There must be zero at the back."

In other words, there shouldn't be a month left at the end of the money!

With a good 10 percent overdraft on your current account is expensive fun. And maybe make the bank rich, but never you.

# 8 Start saving today and never stop

The sooner you start saving, the less you have to put aside each month. Provided you invest your money profitably (see level 4).

Compound interest does the rest of the work. You can see how this works in the following example:

100,000 euros in assets in 20 years

Target ability: 100,000 euros in 20 years, calculation: 4 percent return per year (net = after inflation and costs)
  • Duration: 10 years, savings rate (monthly): € 679
  • Duration: 15 years, savings rate (monthly): € 407
  • Duration: 20 years, savings rate (monthly): € 274
  • Duration: 25 years, savings rate (monthly): € 196
  • Duration: 30 years, savings rate (monthly): € 145

tip: I created the example with the asset accumulation calculator from Zinsen-berechnen.de. I can only recommend this tool!

You see: With the same return, the savings rate decreases the longer the investment horizon is.

If you haven't started saving yet, go ahead and start today so on!

Preferably according to the following principle ...

# 9 Save first and then consume

The order is crucial: if you consume first, there may be nothing left to save at the end of the month.

If, on the other hand, you save a fixed amount first, you can spend the rest without a guilty conscience.

The practical implementation succeeds like this:

Set up a standing order for your current account, which will transfer a fixed amount Y to a call money account on key date X (if possible immediately after receipt of your salary). Finished!

You can spend what remains in your checking account without a guilty conscience.

Speaking of spending money ...

# 10 Define your maximum standard of living

You certainly know the lower limit of your financial needs. The sum that is necessary to cover all necessary expenses (rent, food, insurance, etc.).

But have you ever thought about a financial limit?

What is the net income sufficient to meet your material needs? To buy the things you really need?

If you manage to define this limit for yourself in euros, you will find it easier and easier to save.

Because you don't just uncritically increase your standard of living as your income grows.

And you don't have to ask yourself afterwards where all that money went ... (if in doubt, for any useless purchases).

Level 3: Rent instead of buy

You may already have guessed that it is about the sacred subject of real estate.

First of all: Of course, owning a home can also help to build up wealth.

But it is not a must and in times of skyrocketing real estate prices it has simply become unaffordable for many average earners.

Which is not a drama, because you can build up wealth as a tenant ...

# 11 Buying isn't generally better than renting

Especially not from an economic point of view. Because in order to calculate whether a buyer does better than a tenant (who invests his money in stocks, for example), one would have to Total return know in advance for both investment strategies.

And nobody knows them, see: Buy or rent?

In retrospect, it doesn't look so rosy either ...

“In almost all of the scenarios I looked at, in the 46 years from 1970 to 2015, renting was more profitable than buying. The extent of the “tenant lead” surprised me. "
Dr. Gerd Kommer, see interview here

Of course, buying your own home is always associated with emotional reasons.

But it's about achieving our financial goals and not about which form of investment feels the most beautiful.

Whatever the case, wealth can also be built up without home ownership ...

# 12 Renting has advantages in building wealth

Here are six solid argumentsthat speak for renting:

  1. No maintenance costs (the rent compensates the landlord for the wear and tear of the property - repairs are his business)
  2. Better risk diversification (tenants can more easily diversify their savings over several asset classes and properties)
  3. Higher returns with stocks (see tip 16)
  4. Low transaction costs (buying and selling real estate are associated with significantly higher transaction costs - compared to a securities account)
  5. Spatial flexibility (tenants can easily adapt the size and location of their living space to different phases of life)
  6. Financial flexibility (tenants do not commit themselves by loan to a certain income level for the next 15-20 years).

The owner-occupied property is by no means "without alternative", because ...

# 13 Building wealth is also possible without real estate

However, this only works under two conditions:

  1. Money is saved in a disciplined manner (at least 10 percent of net income) and
  2. The resulting savings are systematically invested. Best in equity ETFs (you can find out more about this on level 4).

I want one more time the essential point pick out, which makes me see a (sole) investment in your own home critically:

# 14 Don't put it all on one card

Anyone who does not have any noteworthy investments besides their own home literally puts all their eggs in one basket.

That can go well, but it doesn't have to be.

It is better to spread your investments over several asset classes or financial products and thus diversify the risk.

That speaks against real estate as sole Investment form.

# 15 Make a decision (finally)

Real estate has become unaffordable in many locations. Quite a few people want to buy, but cannot for financial reasons.

Nevertheless, they are sticking to their desire to own home for an indefinite period of time. However, these are not inconsiderable Opportunity costs connected.

Because money that may be needed in one, two, three or five years as equity to buy a house or apartment cannot be invested in the long term.

And thus not generating a high return.

Therefore, at some point you should come to a (final) decision:

Do i want to buy? And, if so, by when?

Or do I decide against owning a home and invest my money in a securities account?

Which brings us to the next level ...

Level 4: Create sensibly

The emphasis is on makes sense. Savings book, savings accounts and fixed-term deposits may be safe, but due to the lack of returns, they are of no great help.

Equity funds are clearly better suited for long-term wealth accumulation, as we'll see in a moment ...

Before you invest your money long-term, however, you should heed the following two bonus tips:

Bonus tip 1: cover the major risks in life

Check if you have taken out insurance for the major life risks:
  • Illness and need for care: Health and long-term care insurance (compulsory membership)
  • Liability damage: Liability insurance (not a legal obligation, it is essential to take out!)
  • death: Term life insurance (if life partner or children have to be covered)
  • Occupational disability: Occupational disability insurance (recommended)

Bonus tip 2: create an emergency financial reserve

Check whether you have enough money that is quickly available in an emergency:

In the event of unforeseen major expenses (broken washing machine, car repair, unplanned move, etc.) you should have an emergency reserve ready on a daily money account.

This should be around 3-4 times your net monthly income. With a salary of 2,500 euros, that would be an amount between 7,500 and 10,000 euros.

Done? Great, that brings us to a very important recommendation ...

# 16 Invest your money in stocks

At least some of your savings. There are a number of good arguments for investing in stocks because they offer ...

  • The highest return of all asset classes (a broadly diversified equity portfolio brings an average net return of 6-7 percent per year in the long term)
  • Profit sharing in companies (you buy "real assets" and benefit from price gains and dividends)
  • Protection against monetary devaluation (keyword: currency reform)
  • Low transaction costs (as a saver, you have more of your return)
  • Good risk diversification with little effort (see next point)

# 17 Invest in stock funds, not individual stocks

In any case, it is better to buy individual stocks than not to invest in the stock market at all.

But it makes far more sense to buy equity funds.

Because building a reasonably diversified equity portfolio by hand requires a lot of work on the one hand and causes a lot of transaction costs (fees for buying and selling) on ​​the other.

With equity funds, you spread your risk at the push of a button. In addition to the broader risk diversification, the not inconsiderable time savings also speak in favor of funds.

Because the research effort to be able to assess a large number of individual securities is no longer necessary.

But not all funds are the same, which leads us to the next point ...

# 18 Buy index funds (ETFs), not traditional mutual funds

In contrast to actively managed funds, with ETFs (Exchange Traded Funds) no fund manager decides on the selection and trading of securities.

The decisive factor is the composition of the underlying index: The DAX, for example, contains 30 stocks, the MSCI World Index even more than 1,600 companies.

The main aim of the fund management of an ETF is to reflect the development of the index as precisely as possible.

The bottom line is that this saves a lot of management fees (as well as front-end loads) and thus leads to a higher return in the long term.

Attention: Since ETFs are traded on the stock exchange like stocks (even if a bond fund is in them!), they can also be "traded".

However, my recommendation is ...

# 19 Don't speculate - invest (long term)!

Buying stocks is not the same as speculating, although many believe that it is.

Speculators are looking for quick price gains. They therefore buy and sell their securities quickly and frequently.

The investor, on the other hand, puts his money in stocks (ETF) so that the money literally works for him. His investment horizon is long-term.

Because what matters is what comes out at the back. This also applies to investing money. Building wealth is a long-haul flight and not a short leap in the air.

If you want to invest in stocks, you should bring a good 20 years with you. Or more.

Then you have enough time to sit out price losses. Because as you know for sure, the stock market goes up and down.

Which leads us to the next point ...

# 20 Ignore the daily events on the stock market

Whether share X or ETF Y fluctuates in value by 5 percent today is just as irrelevant in the long term as the proverbial sack of rice in China.

Exactly. The one who always tips over.

Anyone who wants to invest in stocks does not have to constantly deal with prices and stock market news. But on the contrary!

Do what you enjoy and let your money work in peace. Hence my motto: Live actively, invest passively!

Which brings us to the last level for successful wealth accumulation ...

Level 5: The right mindset

Anyone who wants to build up wealth successfully also needs the necessary "soft skills". Or to put it another way: the right inner attitude ...

# 21 Don't delegate responsibility for wealth creation to others

Even if you should use the services of a financial advisor (if so, then on a fee basis) - never forget:

The responsibility for your investments and building your wealth is at the end of the line always with you.

It is finally your money, not that of the advisor.

This also applies to your spouse or partner. Women in particular should realize that a husband alone is not enough to provide for old age.

An emotional issue, I know. Speaking of ...

# 22 Don't let emotions guide you when building wealth

Even if it seems impossible to make absolutely rational decisions. At the very least, we should try not to let our emotions take control.

Because the greatest threat to our assets does not come from low interest rates, high inflation or sharply fluctuating share prices.

The greatest danger lies in our susceptibility to financial wrong decisions. Which mainly come about because we listen to our "gut instinct".

In short: trust your intuition, except when it comes to money!

Because financial decisions almost always have long-term effects. And these are clearly easier to weigh up with a cool head ...

# 23 Stay optimistic

The news is full of bad news. Economic crises come and go. Stock prices are constantly moving up and down.

So normal madness ...

Important is: As gloomy as the situation on the stock market may appear in a moment. Viewed over the long term, the curves of the major stock indices always point upwards.

And make those rich (wealthy) who never lose hope even with bad courses.

But what is wealth anyway?

# 24 Wealth is the difference between your wealth and your claims

Even the rich can feel poor and the (supposedly) poor can feel rich. Ultimately, it comes down to the relationship between what you have and what you think you need to have.

How much do you need to be “taken care of” or to feel “safe”?

100,000 euros? 1 million? 10 million?

One thing is certain: it will never be enough if your desires grow in parallel with your wealth (see point 10).

And one very important point at the end:

# 25 Don't invest in investment products that you don't understand

No sensible investment decision can be made without an understanding of the opportunities and, above all, the risks of an investment type.

Yes, I strongly recommend that you invest in ETFs. They are the most important and largest building block for my wealth accumulation.

Please do me just one favor - especially if you're new to stocks: Don't just buy any ETFs!

Make sure to do your research beforehand and read at least a few books before you get started.

Or check this out here ...

There is a simple method with which you can make provisions for old age and build up a lot of wealth thanks to a return of 6-7% p.a.

  • without to spend significant time on it
  • without to take too big risks
  • without Getting addicted to the bank or a financial advisor
  • without To have to go into debt up to your ears for a property

Click here to read more.