Anyone can learn the wealth building basics. Unless you win the lottery, accruing wealth is a life-long process. There are certain things people can do to help or hurt that process. Accumulating wealth ultimately means increasing your net worth.
If you don’t know how to calculate your net worth, or what it really means, check out the Finance 101: Calculating and Understanding Your Net Worth article. The CGS Team is sharing the basics of building wealth so that you can get started on your financial freedom journey as soon as possible. Remember, this process takes time, but small victories add up over time.
Get Rid of Debt
We mentioned above that certain things can hurt the wealth-building process. One of those things is high interest-bearing debt, like credit cards and personal loans. Not only is this high interest debt costing you more money than you originally spent, it’s draining whatever financial resources you do have. If you owe someone money, that counts against your net worth.
You cannot build wealth if you owe more than you make or currently have available. The first step to building wealth is getting rid of any high-interest debt. Mortgages and auto loans aren’t too much of a concern because you are paying down an actual asset. Check out the Savvy Saving Woman’s Debt Reduction Kit. It’s only $9.95 and comes with a 15-page guide to getting out of debt and 2 trackers to help you prioritize your debts.
Start Saving Consistently
Once you have your high interest debt paid off, you can start making some major savings traction. The earlier you start saving, the more money you will have in the long run. There are different savings plans you should have in place to build your wealth. Here are some examples of savings plans to work towards to increase your net worth:
- Emergency Savings (3-6 months’ worth of expenses)
- Retirement Savings (401k plan, IRA, etc.)
- Short-Term Unexpected Expenses (to fund one-time expenses that are not budgeted for)
- Additional Savings Goals (travelling, new house, new car, etc.)
It’s easy to map out your savings plan, it’s not as easy to save for each plan. There are certain things you can do to help make savings easier and more consistent for yourself. The first thing is to get yourself set up on a Budget Plan. Some other things you can do to spend less and save more are:
- Use accountability to stay disciplined
- Track your spending to make sure you are on target
- Eliminate unnecessary spending – see 7 Ways Your Money is Being Wasted
- Avoid using credit cards
Make More Money to Save More Money
While there are certain things you can do to control your spending and save more of the money you do make, you can only do so much based on your income. To take bigger steps with your savings, you need to increase your income. This doesn’t necessarily mean you need to take on another job.
You can work more overtime, try freelance work, start a side business, turn your hobby into a business, or sell your unwanted items. Once you start making more money, you should continue living within the means you had before the increased income. That way any additional money made can go straight to savings to help you accelerate your goals.
Multiply Your Savings
When you reached the point of being debt-free, controlled spending, making more money, and saving everything you can, it’s time to multiply that savings. The best way to do that is through smart investing. If you are just starting out with investing, consider looking into mutual funds.
A mutual fund is a pool of assets managed by a fund manager at a relatively low-cost to the investor. The goal is to make a long-term profit in a risk-averse way. The best returns from investing come from long-term strategies. If you are looking to make a quick profit in the market, expect a lot of risk.
Although building wealth is a life-long process, the actions you take now can have a great impact on how fast and how much wealth you do build for yourself. Start by cutting back your spending and saving more consistently. Once you can do that easily, you will want to start doing more, making more, and building more! What have you done throughout the years to help or hurt your wealth? Do you have any tips for people at any stage of the wealth-building process? Leave a comment below to share your thoughts!