Wealth Building BasicsJuly 30, 2016
Updated December 4, 2019
“Live like no one else will now so you can live like no one can later.” This Dave Ramsey quote is the epitome of what it means to be frugal early in life so that you can live comfortably all of your life. Most Americans dream of going to college, securing a great job, paying off their student loans, and eventually, building wealth and retiring happily. The problem is, we do not all know how to do it, and the idea of wealth-building often sounds lofty. However, like most tasks and new ideas, building wealth becomes approachable and feasible when you break it into easy-to-accomplish steps, such as these:
1. Acquire Wealth:
First and foremost, you need to start accumulating wealth by focusing on your income sources and your expenses in order to determine what your savings potential can be over the near term and long term.
How to Do It:
The wealth-building journey begins with your income. For those starting out, this is the first and most basic step. We have all seen graphs showing how saving a small amount of money each month can compound into substantial savings over time. In order for this to be possible, you must have and save a consistent amount of income over the next 30-40 years. The best course of action is to proactively secure a career that you enjoy and maintain a steady stream of earned income. Next, it is what you do with that income that really helps acquire wealth. Check out our list of salary calculators to figure out how much money you should be making
2. Save the Wealth:
After your basic expenditures are covered — like living expenses, insurance, and utilities — you should determine the income available for investment and establish a strategic savings plan. That savings plan can include a wide range of opportunities to save and may include: short-term or long-term savings accounts, investment products, and more.
How to Do It:
A dream job and smart investing can help generate money, but it is what you do with that money that matters. If your savings are not increasing, evaluate your expenses. Generally, financial growth occurs when your expenses do not exceed your target budget. It may be helpful to assess and track your outgoing spending for a month or two to create a visual layout, a roadmap of sorts, of where your money is currently going and where you could potentially be saving. At this point in your wealth-building journey, you should be taking a critical look at your financial health and deciding whether your expenditures are necessities, given your earnings. Sometimes, simply being aware of where the money is going at the end of the month can make a huge difference in budgeting. For optimal results, make routine contributions to your savings or retirement accounts. Pay your necessary bills, avoid excess spending, and set money aside for savings. Many will feel like it is too late to start saving. It is not. No matter how young or old you are, start saving your money today. If you need some help, check out our Best Apps for Budgeting in College (or budgeting any time).
3. Invest the Wealth:
Money makes money. Once you have accumulated some savings, you should start or continue to invest it, and then watch your fortune grow with time.
How to Do It:
Once you have started to conquer your budget — instead of your budget conquering you — and your savings are consistently growing month by month, then you are ready for the investment stage. If you are not an experienced financial or investment professional, it can be beneficial to meet with a financial advisor to discuss asset allocation, goals, risk tolerance, and establish a personalized strategy. Your investment allocation will vary depending on your own wealth-building goals but can include stocks, bonds, real estate, and more. You can also obtain investment advice by utilizing online tools provided by websites such as Betterment.com, Wealthfront.com, or Acorns. If you want to put your own investment strategy to the test, Robinhood offers commission-free stock trading.
While the above steps are simple to grasp, implementation can often be a different story. Wealth-building calls for a strong level of self-discipline and restraint, but the efforts are well worth it when, in exchange, you attain a solid financial footing. People who develop wealth-building strategies commonly change their perspective on spending, and the first step usually involves a commitment to living within their means. This simple action can be the primary reason someone is able to begin building their personal wealth and enjoying it later. The path to wealth-building begins with a strategic and clear plan. You can find great success with wealth-building if you only follow your set plan and diligently execute it.
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