There are the lucky few who catch some good breaks along the way to becoming rich, but for the most part, becoming wealthy takes quite a bit of effort starting when you are young. Understanding how to make sound financial decisions is a key indicator that separates the wealthy from the rest of the population.
Let’s look at a simple example. Say you are in the market for a mortgage loan, rather than borrow from your existing bank because it is the easiest solution, you should make an effort to compare different options. For a 30-year home loan of AED 2 million, the difference between paying a 6.5% interest rate compared to an 8% interest rate is AED 778,000 over the life of the mortgage. This is a classic example of understanding how to make a sound financial decision; while doing your research to save 1.5% in interest may not seem that important, it does in fact make a significant difference over 30 years. Moreover, bayzat.com provides a fast and easy solution to help you find savings with minimal effort.
Another important part of becoming wealthy is the ability to be disciplined enough to save part of your salary every month. If a 25 year old put away AED 1,000 per month and generated a 10% return on that amount, by age 55 it would total AED 2 million. If you compare the same scenario to someone who starts saving ten years later when they are 35, they would only have AED 718,000 by the age of 55. There is no doubt that saving is the last thing many people think about, but it is an important piece in the quest to become wealthy. Excuses such as “retirement is too far off” or “I don’t make enough money to save” will not make you feel better about the missed opportunity when you look back at your early adulthood.
Another common blunder is saving money only to spend it unwisely. An example would be buying an expensive new car (relative to your income) before you own a home. Just 1 year after your purchase, the car would have depreciated by 20% while you were paying all sorts of related expenses such as insurance, repairs and fuel. A great example of an investment is using your savings as a down payment for an apartment which you can then rent out. The rental income can be used to pay off the mortgage, this way you will have something to show for once the mortgage has been paid.
It is crucial to identify instances where you can save money. Being able to discipline yourself and religiously put away a portion of your monthly salary will help you build a large savings chest. Your goal should always be to make your money work for you, not the other way around.