You can use savings, investment to build wealth

Are you lavishing rather than building wealth? Then you are not getting it right. Building or creating wealth is necessary for your financial freedom but it takes a gradual process, so it requires your commitment and time.

Saving and investing money are both tools that you can use to build wealth. You need to do both to really begin to make progress, say Miriam Caldwell, personal finance specialists.

She said it is important to understand the similarities and differences between saving and investing your money. It is also important to be sure that you are doing both within your budget and wealth building plan.

Basically, saving money is putting money aside on a regular basis. You spend less money than you earn and put the rest into the bank. You should have this be an automatic part of your monthly budget.

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Investing is taking this a step further. Once you have a good amount saved, you can begin investing money. Investing is the way that you will begin to really grow your money and begin to build wealth. If you keep your savings in a savings account, the amount of interest you will earn will be very small.

However, if you invest in mutual funds or stocks, your interest rate will be much higher. You will eventually come to the point where your investments make more than you are contributing each month. Your wealth really begins to grow at that point, she explains.

ARM, one of the leading asset management and financial advisory firms with a global perspective in investment management, said a mutual fund is a unit trust made up of a pool of investors’ money, managed by a fund manager who invests that pool of money in various investment instruments.

Units are initially allotted and priced to reflect the overall value of the fund. Each investor in the fund holds units which represent a portion of the fund, and subsequent capital gains are reflected in the price of the units. A mutual fund may be open ended, which means that the fund is open to new investors at any stage of its life cycle; or closed ended; meaning only the investors who initially pooled the funds can participate.

One of the benefits of mutual funds, according to ARM, is that unlike other investment instruments which require a substantial amount of capital, investing in mutual funds isn’t as demanding. In Nigeria for example, with as little as N10,000 you can invest in the Discovery Fund.

HOPE MOSES-ASHIKE