How to build wealth on your current income

Making money is one thing, but creating wealth that will outlive you is another. Anthony Mwithiga, Chief Investment Officer and Head of Wealth Management at the Commercial Bank of Africa (CBA) tells JACQUELINE MAHUGU the secrets to building lasting wealth.

1. Save in a unit trust

If you do not want to be an entrepreneur and your salary is your only source of income, focus on saving.

Saving has no relationship with the amount of money you earn. You victimise yourself when you say that you cannot save because you are broke. Try to have a percentage and keep increasing it, from at least 10 percent. It should be part of your DNA. Savings are the easiest source of investment capital. Not borrowed money from friends or investors.

With Sh1,000 or Sh5,000 you probably won’t get direct audience with a financial advisor, but you will get it through a product which gets you that expertise without having to meet them.

This is by joining a savings product that has a slightly higher return than a savings account in a bank. Enter into collective investment schemes, also known as unit trusts. Many people with little money come together, and the investment becomes bigger.

The unit trust industry in Kenya is very big. The money market fund is the simplest, where you pay a minimum of Sh5,000 per month, although the return is low (about eight to ten percent per year) because the risk is also low. The issue here is not the return, but the ability to consistently save. If you can save consistently for a year, you have begun your wealth creation journey.

2. Get a side hustle

You can choose to augment your income with an income-generating activity on the side. It should be something you are passionate about or naturally talented at, and most importantly should have the possibility of being a future full time job for you.

That means should one day be able to employ you and enable you to come out of full employment and transition you to business owner or entrepreneur. However, since ‘side jobs’ are not are not at the moment your ‘main hustle’ or key source of income, it is important to make sure that they don’t interfere with your main income source.

3. Invest in other people’s businesses

After saving for a number of years, one of the hardest things is to run a business while being employed. You need time, because you probably have three or four other things to juggle in your life. As a professional who is busy in an office, you can also invest in other people’s businesses. You can take the risk and provide an entrepreneur looking for capital with the finances they need. If they succeed, you earn passive income from the returns they make.

4. Educate yourself

In one’s savings and investing journey, it is paramount to educate yourself on the basics of money even though the financial world isn’t your original calling or career. This will enable you to understand the basic attributes of incomes and taxes while savings and investing.

For example, they will be investment products or instruments whose returns attract less taxes or are totally tax exempt. In addition, the choice of your investment owner vehicle i.e. self or via a company will also influence your tax obligations but above all seek tax advice from a tax professional especially when entering into investment ventures of substantial magnitude.

5. Give entrepreneurship a shot

The ultimate route to everlasting wealth is entrepreneurship, which means converting an idea, a passion or an invention into a profitable economic enterprise or business that is able to out-live you.

The entrepreneurial journey is the hardest in creating lasting wealth, but it is the most rewarding and creating wealth can come sooner through this. Building lasting wealth starts from a savings journey, grows into an aggressive investment journey and then becomes a wealth preservation journey. Each stage can take you 10 years if you are an employed professional. If you are a business person, it can take you the same or less. Entrepreneurs tend to create wealth faster than employed people.

6. Get smart about your salary

Naturally, we cannot all be entrepreneurs or business owners, but employment can also be a very fulfilling path for a working class professional.

A consistent salary from employment can be a good and safe source of income for building a savings-pot or to access credit from financial institutions for purposes of acquiring property or investing jointly with those who have better entrepreneur skills.

A long and successful working career can be as effective in creating wealth as being a business owner or an entrepreneur.

7. Hire professional wealth managers

You may be good at generating savings and capital from your income, but not good at re-investing those savings. You can approach a credible financial institution that has a wealth management division and together, you go through your expectations, your risk tolerance, whether you want your money back fast after investment, understanding your source of income, the stage of life that you are in, your tax obligations and so forth. This helps you start off on stable footing, and help you avoid wealth-damaging mistakes as you go along.

8. Acquire the habit of protecting yourself and your wealth

Recognise that your biggest asset is yourself. You need to be alive and well to get the wealth. Even if you cannot afford insurance products, know that they exist.

You need a medical cover, insurance of anything that you acquire and that you call an asset and a life policy. Value them and have them insured. This is because people become extremely wealthy but have never considered insurance policies to protect their wealth, so they end up losing a billion shillings because they did not want to pay a hundred thousand shillings.

They were not cultured from day one that they always need to embed risk measures in their wealth creation journey.