12 Essential Steps to Start Building Wealth Now
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Retirement might be right around the corner or it might be decades away. In either case, you need to be planning for your future right now.
Building wealth isn’t all about investing, that’s part of it, but how you manage your money throughout your life will play a big role in when (and maybe if) you can retire comfortably and live the lifestyle of your dreams.
Building wealth is like a road trip, not a non-stop flight. It’ll take time and planning and your constant attention if you want to make it to your desired goal.
Start with the end in mind. When do you want to retire and how much wealth do you want (or need) to acquire to live comfortably?
Work backward from there. With the big goal in mind, set smaller goals that you can manage across shorter periods of time.
Related Article: 9 Surefire Ways to Finally Reach Your Financial Goals
Get an Education
If you’re still young, or if you’re not where you want to be with your career, start by investing in yourself.
Your education might be formal from a university or even a trade school. Learn the skills you need to develop yourself and get into a career (or your own business) to earn a solid income.
Besides getting a formal education, continue to read and learn from others. Here are a few books to get you started.
Pay Yourself First
The moment you get paid, you should set aside some money for your future self.
You can start with a small amount, but ideally you’ll want to save 10-15% of your income for retirement. As discussed below, you'll want to put this money toward investments that serve you best.
A report by CareerBuilder stated that 56% of Americans save $100 or less per month. Let’s get that number higher, much higher!
Live By a Budget
There’s that dirty word again … budget.
There’s a thought that budgets are restrictive because you want the freedom to spend your money where you see fit.
Having a budget just means you planned in advance how you are going to spend your money. You get a clear picture of how much you have left and can make better decisions on what you spend your money on.
A budget isn’t restrictive as most people think. Your budget is the opposite. It gives you the freedom to know what you can and can’t afford and helps make the most of your money.
A budget doesn’t have to be difficult or time consuming. Learn how I’ve automated my budget so it requires very little maintenance.https://www.savvysaversacademy.com/busted-balanced-free-5-day-budget-challenge/
Live Within Your Means
This goes hand in had with keeping a budget. If you don’t have the money for something, don’t buy it. Save up until you can afford to buy it.
Better yet, live below your means if you are able. Cut back on everything that isn’t essential and use your money for things like your emergency fund and paying off debt as we talk about below.
Create an Emergency Fund
There’s nothing quite like a major emergency that can wipe out your well laid financial plans.
Major medical setbacks, car accidents, broken appliances, catastrophic plumbing issues or a loss of job. The list can go on and on.
The key is to be prepared in advance so that the emergency can be paid for and not put you into financial ruin.
Ideally, you’ll want to keep a minimum of one month’s living expenses in an emergency fund. Not knowing what to fix for dinner and ordering pizza doesn’t qualify as an emergency … keep your money safe for a true emergency.
Work your way up to saving 3-6 month’s of living expenses in your emergency fund.
Related Article: 12 Helpful Tips to Build Your Emergency Fund Fast
Get the Right Insurance for Your Family
Alongside your emergency fund, you should carry the appropriate amount of insurance for your family. Here are the insurances you should consider having.
- Car insurance – required if you own a vehicle
- Health Insurance
- Life Insurance
- Long-Term and Short-Term Disability
- Term Life Insurance
- Identity Theft Protection
- Homeowners or Renters Insurance
Additionally, make sure you have enough money saved in your emergency fund to cover the deductibles for your insurance.
Some of these insurances might be provided though your employer. Others you will need to talk to a local insurance agent about. Be sure to shop around for the best rates and decide if bundling your insurance with the same provider will save you money.
Stay the Course with Your Spouse
This one can be hard, but it doesn’t have to be.
Each of you have your own ideas on how to spend money. It’s up to you to come together with a plan that works for your family without squashing each other’s values and opinions.
Do whatever you need to do to come together with you spouse or partner for the sake of your relationship and your financial future.
Related Article: 15 Tips from a Couple Who Never Fight About Money
Get Out of Debt
Paying off debt (and staying out of debt) is like giving yourself a big raise.
Let me explain …
Think about all the money you pay to others every month, with interest.
Go on, add it all up.
Now think about what you can do with that money once you no longer owe it to someone else. It’s yours to keep, save and spend the way you want.
The quickest way to eliminate your debt is by using the debt snowball method. You can read more about that here.
Understand Compound Interest
Compound interest is the secret sauce to making your money grow like a stinkin’ weed.
This is where you start with an investment, earn interest on it, then earn interest on the interest.
Like so …
The more you invest, the more you can earn. The key is to find the right investments for you.
Up next …
You’ll want to find the right investment that can offer a reasonable risk-to-reward ratio.
The investments that can offer the highest reward (or the most potential earnings) are also some of the riskiest. It’s important to educate yourself when investing in such things as businesses or stocks (higher risk investments) to make sure you understand how to maximize your money without losing more than you earn.
Other investments that aren’t very risky don’t offer very good returns. Some won’t even keep up with inflation and are impossible to build wealth by themselves. These are good places to keep an emergency fund, like a savings account, but if you want to build wealth you need to get a better return than what a savings account or CD (for example) can offer.
Mutual Funds are a great place to start if you have little experience but still want a better ROI (return on investment). The easiest way to buy into Mutual Funds is through your companies 401(k). Be sure to take advantage of any company match programs available.
For more information about investing, I recommend checking out SmartVestor to find a professional that can help you.
There’s an old saying “What goes around comes around.”
Once you’ve hit your stride and are on your way to financial success, an added reward is bringing others along with you.
You can be kind and extend your generosity through the knowledge you’ve gained or help others get back on their feet financially. It adds the feeling of success when you can bring others up and help them reach their goals.
If your candle is lit and you light another candle, now there are two candles lit. Your candle won’t go out. You can spread this light through your generosity to others.
What are your dreams for yourself and your family in building wealth? What are you doing now to make sure you get there?