What does it mean to be wealthy, and do you know how to start building good habits to accumulate wealth? Currently, around 80% of Americans live paycheck to paycheck, and Forbes suggests that many people consider the net worth for a comfortable life to be around $778,000.
But how do you get that far, and how can you start building wealth and adopting good financial habits to help you get from here you are to where you want to be?
Table of Contents
Make A Plan
Financial wealth doesn’t come overnight; even lotto winners aren’t always considered wealthy unless they get great advice and put wealth-building habits in place. It takes time and education to learn about finances, make the right choices, and be distant.
Understanding your current financial standing, your future aspirations, and the timeline to achieve them is crucial. By creating a comprehensive financial plan, you can take control of your wealth-building journey.
Building wealth won’t happen overnight. There’s a significant gap between the figure Americans perceive to be financially comfortable and the average income of $80,610. However, by setting realistic and achievable goals, you can steadily work towards financial security.
Pay Down Debt
You cannot reasonably expect to build wealth if you have large amounts of debt. Debt such as a mortgage is considered good debt, but if you have copious personal loans or credit card debt hanging over you, a good place to start is to pay it all down and reduce your debt level. A good debt-to-income ratio is 35%.
If you’re paying more in interest on loans or credit cards than you get in savings, it’s a good idea to use any savings to pay off your debts. Once they are cleared, use the money you were paying off to put back into your savings accounts.
Start Saving
If you’re not already, you need to be putting some of your income into a savings account to help you start building a financial nest egg. Once you have accumulated a significant amount of savings, you can use this towards other money-making opportunities. However, in the first instance, you need to start practicing good savings habits by putting away regular sums of money you can afford to not spend each month.
Earn Money
You need money to build money. Do you need to focus on your origin and build on this to hope you grow that wealth as per your plans? It might be that you start looking at side hustles that can generate income, which you can save or invest or help you pay off debt, for example.
You might find investing in your career and getting qualifications is a good idea to boost your career and help you rise to the ranks in your industry. But you need to factor in how you’re making money out of your plan to help you reach your goals.
Invest
When it comes to investing, you don’t want to be jumping on some latest fad or trend, especially if you don’t understand it. This is a surefire way to lose all your money. Instead, talk to financial experts who can help you understand how to invest and what the best option for you is. Take some time to look at different investment products to get an idea of what you can invest in to see what is a good fit for you. Not all investments are suitable for everyone, and you need personalized help based on your risk level and current financial position to help you get the results you need without losing everything you have.
Protection
Protecting your assets is vital to building wealth, and this can be accomplished through various insurance policies.
- Owners’ or renters’ insurance is vital to protect property.
- Life insurance is to protect beneficiaries in the event of your death
- Disability insurance in the event you become injured or unable to work
- Auto insurance for vehicle protection.
Tax Minimization
Taxes are an inevitable part of life; however, understanding the legal options for minimizing what you pay can serve you well. There are other strategies available to you, such as tax-advantaged accounts, 401(k) plans, or 539 college savings funds. You can opt for tax-efficient investments such as stocks in taxable accounts or income-generating assets. Or long-term capital gains might be better for you. Talk to a tax expert who can give you correct legal advice concerning your strategies so you can work this into your long-term financial plan to make the most of your income.