How to create wealth

How to create wealthBeating the Januworry blues from the get-go Consider ditching your cellphone contract, better yet, don't buy the most expensive property or car you can afford, advises Moneyweb's Inge Lamprecht. January is usually accompanied by various New Year's resolutions. And even though these promises often include a vow to start saving or stick to a budget, January typically also brings its fair share of new expenses in the form of higher school fees, medical aid contributions and insurance payments.

Many consumers will likely also see their tax burden increase from March onwards if tax hikes are introduced as expected. Although the economic outlook has improved from a year ago, consumers are expected to remain under pressure for the foreseeable future.

So how do you create wealth in such an environment? Particularly if you don't earn huge amounts of money and have to manage your money wisely in order to make ends meet?

The late US economist and Nobel Prize winner Paul Samuelson once said that investing should be like watching paint dry or grass grow. “If you want excitement, take US$800 and go to Las Vegas,” he advised.

Don't buy or rent the most expensive property you can “afford”

Often the assumption is that you should buy the most expensive property your salary would allow. Put differently, apply for the maximum loan the bank would approve.

Is it worth staying in a complex where the levies are hugely expensive, when you can buy a property in a similar estate and pay half the amount? No doubt these sacrifices can be hard to make, but saving just a few hundred (or thousand) dollars every month and investing it, can go a long way in creating wealth over time.

The same is true for renting. Even if your budget suggests that you can afford paying 30% of your salary towards rent, it doesn't necessarily mean that it is a sensible approach.

A car is not an investment – it may not even be an asset

Although many car enthusiasts still place a high premium on vehicle ownership (the percentage of people who rent a car or use vehicle sharing options are still small compared to those who buy) upgrading as soon as the trade-in can cover the outstanding loan, effectively means you never own the car in any case. Keeping up with the Joneses when it comes to buying a vehicle may be one of the easiest ways of destroying wealth over time.

Ditch the expensive cellphone contract

If is often possible to save a few hundred bucks every month by not getting the latest cellphone or opting for a contract suited to your specific needs. The difference should be invested every month. Ask yourself whether you really need and use the more expensive technology and if it makes financial sense.

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