The Wealth Generation Cycle

generational wealth

It’s not a stretch to say that many of us still see wealth as an immediate result of a reversal of fortune. Yesterday, you were living paycheck-to-paycheck, but a chance bid at the lottery has made you a millionaire. Your family used to be in financial trouble, but you joined a singing contest, and now, you’re a celebrity. While there’s nothing wrong with letting lady luck give you your big break—these things do happen after all—they also tend to keep us from actively pursuing wealth as a goal.

Here at PesoMatters, we believe that wealth is a cycle, and if you choose to subscribe to this philosophy, then that means accepting the idea that you’re probably already in the middle of it.

The wealth generation cycle: earning

The wealth generation cycle: earning

There are four key phases in the wealth generation cycle: earning, saving, protecting, and growing—in that order. Earning is about accumulating money, and the good news is, many of us are already operating at this level. Whether you’re employed, doing freelance work, or running a small business, as long as you’re making money, you’re earning.

Usually, if you’re capable of earning, you’re also capable of saving, but that’s not always the case. It’s not because you lack the discipline per se—this is a different situation altogether—but because your income is simply too insufficient. In this case, you’ll need to find a way to strengthen your earning power. We understand that this is easier said than done, but it’s a crucial challenge all of us need to overcome if we want to graduate and move on to the next stages of the cycle.

How do you strengthen your earning power? Think about your options. If you have a regular job, what do you need to do to get promoted or get a raise? Can you take on extra work for added pay? If you’re doing freelance work, can you increase the number of projects you accept? Can you raise your fees without losing your clientele? Maybe you can find a way to juggle regular employment and freelance assignments.

Click here for ideas on how to increase your earning power.

Working on your earning power alone can take a lot of work and can go on forever. But if you’ve at least made it so that you’re earning enough to save, then you can move on to the next step of the wealth generation cycle.

The wealth generation cycle: saving

The wealth generation cycle: saving

Once you have a steady gig going, it’s time to start saving or working on your ability to save. Much like how you needed to improve your earning power, so do you need to become better at saving. Having and maintaining a savings account is the most basic step, and yet, a lot of people struggle to stay on track. They deposit an amount today and find themselves dipping into their coffers before the month is over. How do you make sure you don’t touch your money? This is where choosing the right financial instruments and strategies—think time deposit accounts and budgeting—can come into play.

Of course, simply maintaining your savings account at the same level will get you nowhere. The next step to strengthening your saving power is growing it. Having a plan helps. Set a savings goal that increases every month. Check to see if there are banks with better interest rates. People have also started getting into ipon challenges to keep themselves accountable. The most popular one is the 52-week ipon challenge where you’re tasked to set aside an increasing amount per week, so that by the end of the year, you’ll have accumulated a sizable amount of cash.

Here at PesoMatters, we’re huge fans of these ipon challenges because they make saving a lot more entertaining. Click here to see a list of other ipon challenges we’ve compiled.

Working on your saving habits and techniques takes time and not a small amount of effort, so every step forward is something to be celebrated. Don’t be too hard on yourself, and don’t keep comparing yourself to other people. We all move at our own pace.

The wealth generation cycle: protecting

The wealth generation cycle: protecting

You’ve got your earning and your saving ducks all lined up—congratulations! The next step is protecting the fruits of your labor. This is especially important if you’re the primary breadwinner of your family. In case you meet an untimely death, you want to make sure that your dependents are taken care of.  They’ll already be grieving your loss—taking measures to protect your income while you’re still living will at least give them one less thing to worry about in the future.

This is where life insurance comes in. If you’re insured at the time of your death, your beneficiaries will receive a lump sum that’s known as a death benefit. How big this cash amount is depends on the plan that you choose to get—it can be P500,000 or P5,000,000. While money from life insurance doesn’t last forever, it’ll buy those you leave behind some time to start anew.

Another way to protect yourself and your dependents is to get health insurance. In fact, these days, people are prioritizing getting health coverage more than life insurance. In the event that you get struck with a critical illness or hospitalized, you and your loved ones won’t have to worry about the costs as much.

The wealth generation cycle: investing

The wealth generation cycle: investing

The last phase in the cycle is all about growing your wealth more assertively. It’s not just about increasing your earning power or relying on your bank’s time deposit rates to cancel out inflation, but of exploring other opportunities for financial growth. Unlike earning and saving, however, investing comes with a higher degree of risk. You can actually lose money when you make calls that don’t work. Then again, these moments are also opportunities to learn.

Many people are hesitant to cross over to this phase because they’re quite happy with doing the first three—earning, saving, and protecting—on repeat. And there’s nothing wrong with that. At the end of the day, it’s your choice.

However, if you’re comfortable enough to get a little uncomfortable, then you can explore your options. Do you want to buy and sell on the stock market? Perhaps you want to start a new business. Do your research well. Alternatively, you also have the option to combine your protection and investment plans by getting variable universal life, life insurance that comes with investment opportunities.

The number one rule in investing, especially for beginners, is to invest only an amount that you can afford to lose. If you can only afford to lose P5,000, then don’t bite more than you can chew.

The wealth generation cycle is never-ending. While the natural progression is to move from one level up to the next, it doesn’t mean that you should neglect the levels you left behind. Even as you’re investing, don’t forget to work on earning, saving, and protecting. Since it’s a cycle, one level impacts the rest. If you’re successful at investing, that’ll give you more earning power, which translates to more savings, more wealth to protect, and more money to invest. Good luck!