A former investment banker shares the strategies she's using to build long-term wealth, including 3 mental tricks she used to save six figures

Authors: Kathleen Elkins

Source: Business Insider

Nischa Shah worked in banking for nearly a decade before quitting to go all-in on her content creation business.

Leaving the corporate world meant taking an 80% pay cut at the time, she told Business Insider. It also meant walking away from a six-figure bonus, which BI verified by looking at a copy of her employment contract.

"That was the hardest decision that I had ever made," she said, adding, "I had set myself up financially, and I knew what made me happy."

Shah felt comfortable walking away from a steady paycheck as soon as her personal finance YouTube channel, which she launched in 2021, started bringing in enough money to cover her fixed costs.

It also helped that she'd built six figures in savings, according to screenshots of her savings and investing accounts viewed by BI.

The former investment banker from London has been working for herself for over a year. In addition to earning money through YouTube, where she's amassed nearly one million subscribers, she does speaking events and drives sales from her online money course.

How an accountant and former banker invests her money to build long-term wealth

Shah, also a chartered accountant, recognizes the importance of having a diversified portfolio and owns a variety of asset classes: cash, real estate, bonds, and equities.

"All of these different asset classes react differently in different markets," she said. "You never know which one is going to do well and which one is going to rally and which one is going to plummet."

She elaborated on her stock market and real estate investing strategies.

Stock market

Shah diversifies within asset classes, as well. In terms of the stock market, "the way I diversify is through funds, so investing in hundreds of different companies through one fund rather than investing in individual stocks," she explained. "So I'm stretching myself out across all geographies, all sectors, all industries."

Other smart investors prefer this type of index-fund investing. Index funds are inherently diverse and tend to have low management fees since they're passively managed. Anyone can open an account with brokerages such as Fidelity and select an index to invest in and buy shares.

The key to long-term successful investing is three-fold, added Shah: "Diversify, start early, and be consistent with it. That is the recipe to get to where you want to by the time you retire."

Real estate

Real estate is a trickier asset class to own. While anyone can invest in the stock market starting with as little as $1 thanks to micro-investing platforms, owning real estate typically involves bigger upfront costs.

Shah, who lived at home for years in her early 20s to save up to buy her first place, knew at the beginning of her career that she wanted to add real estate to her portfolio. She and a group of friends would discuss the advantages of owning property and think through strategies for getting their feet in the door.

She likes this type of investment for two main reasons.

For starters, you get levered appreciation. With real estate, unlike other investments, you can borrow a lot of money (from a mortgage lender) to buy the asset, but you don't have to share any of the appreciation.

"I could put down a 20% deposit, and then the bank will lend me 80% to buy this asset," she said. "You can't do that when investing in the stock market. You can't use someone else's money to make money."

Secondly, if you're buying an investment property and renting it out, you can generate cash flow. That's your rental income minus all of your expenses.

The cash flow you can generate from real estate is "far greater than what you'll get from most other investments," said Shah. "It doesn't really compare to dividends. You have to have a lot of money invested to be able to earn a similar amount."

Shah, who owns a mix of commercial and residential properties but prefers not to share the details of her portfolio, did most of her expanding in the last five years when her banking salary was at its highest, she said.

Mental tricks to spend less and save more

It's not lost on Shah that her previous six-figure salary, which BI verified by looking at her employment contract, contributed to her ability to save at a fast rate.

Still, she used three psychological tricks to spend less and keep more of her paycheck.

1. The 'hours worked rule'

Before buying something, calculate how many hours of work you'd be trading to afford that purchase — and then ask yourself if it's worth it.

For example, "If you want to buy a new pair of trainers that cost $100 and you're making $20 an hour, you have to work five hours to buy those shoes," said Shah. "Are you happy to trade five hours of working for them? If you don't have trainers, then, yes, you're probably totally fine with that."

However, if this is your fifth pair of shoes, "that's you trading 25 hours," she noted. That's about three days' worth of work and might change your perspective on the purchase.

2. Asking, 'Would I buy it if no one else could see it?'

Another powerful question to ask yourself before purchasing anything, particularly material items, is: Would I still buy this if no one could see I have it?

"So many of us buy things we don't need with money we don't have to impress people we don't like. We all know that saying," said Shah, but that doesn't necessarily stop us from buying to impress. It's easy to get caught up in social status, and not even Shah was immune: "I did this so much in my early 20s. There are so many material items that I bought that, looking back, I could have put that money to better use."

Before you upgrade your car or purchase the latest iPhone, ask if it will make you happier or improve your life.

"Actually saying, 'Is this really want I want or am I doing it for someone else?' really flips the switch," said Shah. It'll help you spend less on things that aren't important to you and free up more cash to invest — in a wealth-builder like the stock market or real estate, or in yourself.

3. The 48-hour rule

As the name suggests, wait 48 hours before making a major purchase.

It's normal to want to buy something in the moment. You're shopping, trying on a sleek blazer, and feel like you have to have it.

"We always want to buy something straight away. Before you buy, wait 48 hours," advised Shah. "And if you're still thinking about it, then go ahead and buy it." But if two days pass and it hasn't crossed your mind, skip the purchase.

Bonus savings hack: Automate your savings

Shah's mental tricks can help you change your spending habits, but when it comes to major savings goals — a vacation, your first property, early retirement — the best way to hit those is to automate your savings.

"As soon as you get paid — as soon as that money gets put into your bank account — transfer it into your savings account straight away. Before you do anything else, pay yourself first," said Shah. "At the end of the day, systems beat willpower."

This article was written by kelkins@businessinsider.com (Kathleen Elkins) from Business Insider and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.