I’m a Financial Educator: Here Are 8 Steps You Need To Take To Build Wealth
Building wealth is a long-term process. It involves many steps done over many years. If you want to build wealth, here are eight steps you’ll want to take.
Trending Now: How To Earn $4,000 a Month in Passive Income
Explore More: How To Get $340 Per Year in Cash Back on Gas and Other Things You Already Buy
Make Plans
Making a financial plan is one of the first steps to building wealth. Identify your goals and come up with a plan to accomplish them.
Examples of financial goals could be retiring early, purchasing an investment property, or building an investment portfolio that provides a steady stream of passive income. You can hire a financial advisor or use a robo-advisor to help you make a specific plan.
Try This: How I Make $5,000 a Month in Passive Income Doing Just 10 Hours of Work a Year
“If you are serious about increasing your overall net worth you must have a financial plan in place.,” said Kevin R. Chancellor, financial advisor and owner of Black Lab Financial Services. “When I was a teacher, I was taught that “If you fail to plan, then you plan to fail.” That cannot be more true with trying to build wealth. Many of the most educated and well-informed investors still have financial plans and work with financial, tax, and estate professionals to help grow and protect their net worth.”
Create and Stick To A Budget
A budget is a plan for how you will spend your money. The ultimate goal of any budget is to avoid spending more than you earn.
Many people don’t like the idea of sticking to a budget. However, it’s one of the fundamental steps of building wealth. Create a detailed budget that accounts for all your expenses. This includes necessities like housing, auto loans, and groceries. Plus, discretionary items like eating out, entertainment, and travel. With this budget, you’re less likely to overspend and, therefore, more likely to reach your financial goals.
Setting up a budget is pretty simple. Two popular budgeting methods are the 50/30/20 rule and the 70/20/10 rule. Both allocate most of your income toward your needs and then split the remaining among savings, debt, and other expenses.
Manage Debt
Being able to manage your debt is a vital part of building wealth. But it’s the type of debt you should be most cautious about. That’s because not all debt is created equal. For example, you shouldn’t view your mortgage in the same way as credit card debt. That’s because your mortgage has a much lower interest rate. Most people view mortgage debt as “good debt”.
Credit cards and personal loans onthe other hand can have much higher interest rates and affect your ability to build wealth. You should make it a priority to pay off any high interest debt you’re carrying.
There are a few methods for paying off debt. Two of the most popular include the debt snowball and debt avalanche methods. With the debt snowball method, you focus on paying down the account with the lowest balance first and then work your way up to the largest balance account.
With the debt avalanche method, you start by paying the debt with the highest interest rates first while still making minimum payments on your other accounts. As you pay off the first debt, continue to the next-highest interest rate account and work your way down from there.
Build an Emergency Fund
Emergency funds are essential for your financial security.
Unexpected expenses will happen, and having an emergency fund means you can pay for them without having to rely on credit cards, loans, or your retirement savings, all of which make it harder to build wealth.
Most experts advise having at least three to six months of living expenses in your emergency fund.
Max Out Retirement Savings
Once you have built an adequate emergency fund and paid your high-interest debt, you should consider maxing out your retirement savings.
You should always be contributing enough to your employer’s 401(k) account to receive your company’s match if they provide one.
You can also open a Roth or Traditional IRA account to maximize your retirement savings opportunities.
Automate Finances
Automating your finances is an easy way to build wealth without doing too much work.
Once your budget is set, you can set up automatic transfers through your employer or bank. You can have a set amount of your monthly paycheck transferred to your savings, investment, and 401(k) accounts. You can also set automatic payments for your credit card bills, student loans, mortgage or rent and other debt.
“Automation ensures that you are regularly saving and investing without any lapses,” said Andy Chang, Founder and CEO of The Credit Review. “For example, automate your bills, contributions to retirement funds, investments, and savings. This eliminates the risk of missing any payments and aids in steadily building wealth over time.”
Increase Earnings
While many people focus on saving money when they want to improve their finances, earning more money can actually be one of the best ways to build wealth. More income means more money to invest and more future wealth.
If you haven’t had a raise in a while, start there. Inflation is causing everything to be more expensive. If your salary isn’t increasing to make up for the rise in prices, you’re actually losing money.
Other options to increase your earnings include switching jobs altogether so you can increase your salary and starting a side hustle.
As you start to bring in more income, make sure your lifestyle stays the same. Use the extra money to continue building wealth and not to buy the latest gadget.
“Having multiple income streams is one of the best assurances against financial insecurities,” said Chang. “It could be a side gig, rental income, setting up a small online venture, or investing in stocks, thereby diversifying your income and opening up additional avenues to invest and grow wealth.”
Stay Diversified
As you start investing more money, it’s important to make sure the account can continue to grow efficiently. That starts with diversification. A diversified portfolio with different types of investments can protect your wealth from stock market delines.
The Bottom Line
Building wealth involves many steps, but if done properly, the results can be rewarding. You don’t need to tackle all of these steps now. Instead, focus on what is achievable today and create a plan for the future.
More From GOBankingRates
I'm a Shopping Expert: 9 Items I'd Never Put in My Grocery Cart
This is One of the Best Ways to Boost Your Retirement Savings in 2024
This article originally appeared on GOBankingRates.com: I’m a Financial Educator: Here Are 8 Steps You Need To Take To Build Wealth
