Wealth constitutes the absolute value of all the assets an individual, a company or even a country owns. It includes the market value of all the tangible and intangible assets minus all debts. Countries commonly measure their wealth by GDP per capita and, individuals use net worth to express their wealth.
The Secret to Building Wealth
Contrary to the common notion, amassing wealth doesn’t need you to earn a six-figure income. Thoughtful planning of resources and following a pre-defined savings strategy leads the way to create a financially secured nest egg. There are various factors that decide on the creation of wealth.
The ideal rule to create wealth is to make, save and invest money. Let’s discuss this in detail further.
Make a substantial amount of money
Having a long-term source of regular earnings is the beginning to achieve your financial goals. Your income should let you keep some percentage for saving after meeting your necessary expenses. This also includes controlling your expenses. However, its only one side of the coin. In case your expenses are cut to the maximum, you need to increase your income. To achieve this:
Change jobs with a calculated approach
Your job is often your biggest source of income. You probably will not experience much growth if you are stuck in the same job for years. If you are looking for a big leap in income, change jobs every four years. This way, you can make over 50% more income compared to the amount you make staying in the same job.
Enhance your professional skills
Life is an ever-learning process. Similarly, there is always room to work upon your skills and learn new ones in your domain too. You can attend workshops, get additional certifications related to your domain or read self-help tutorials.
Generate income from multiple sources
Job loss is common these days and, it’s also difficult to get a new one immediately. Hence, it’s extremely important to create other potent sources of income. It can be freelancing, pursuing your hobby and making money by selling it, weekend jobs and others.
Save and Invest a good percentage of your money
Earning a good income is one thing. Saving a part of your earnings is the other important factor needed to generate wealth.
Maintain a budget
If you want to build wealth, you should keep track of your spending. You have to take control of your spending leaks and follow a budget program. Always keep 50% for your essentials, 20% for a more comfortable lifestyle and 30% for your savings.
Before buying something, it’s always wise to do some research. Make sure to buy something of good quality to create more savings. This is because you need not replace the item often, which eventually saves you money.
Learn the in and out of investing
Learning about investing can be a daunting task at the beginning. Remain patient and start from the basics. Start small with index funds and go ahead as and when you master the nuances of investing. You can also opt for mutual funds that have been making profits for several years.
Choose a financial planner
Getting in touch with a financial planner really gets things going. The professional planner can guide you through various investment products available. The financial planner should explain the different products and, which one to opt during a particular phase of life.
Maintain a systematic financial system
This means you should be debt-free because the rate of interest on the debt is always higher than that of investment.
It’s always safe to automate your bill payments to avoid any late payment fees. Avoiding late payment fees means putting away those extra bucks into savings. And, wherever possible, make sure to cut down on your bills.
This also includes automating your savings on a monthly or yearly basis. Often, life gets too busy and, you may forget funding your retirement account. Link your IRA account to your bank account to set scheduled transfers.
Recheck your savings periodically
Automating your savings is fine but, you should keep reviewing it every now and then. Your retirement account can get affected by market dynamics. This depends on your investment portfolio. If stocks dominate your portfolio, it can plunge during a stock market crash.
To avoid such a scenario, you need to keep a balanced portfolio or even consider making alterations wherever required. You can incorporate changes to your investments and create a diversified portfolio.
Increase the savings rate
Your income is hiked? Got a bonus? Don’t spend it. It’s fantastic to make the extra money work for you. Increase your savings rate whenever possible and, take big steps towards building robust wealth.
Fund your retirement account first
Though your kids’ college expenses cannot be overlooked, it’s important to save for your retirement first. With smart planning, you can afford to fund both while you cut down on unnecessary expenses.
Avoid using your social security before retirement
Delay taking your social security claim to the maximum extent possible. If you delay until full retirement, you can get 100% of the benefit. In fact, the further you delay, you are eligible for a bonus too.
Building Wealth Based on your Age
Here, we’ll discuss the financial steps to take and those to avoid during various stages of your life.
Start investing in your 20s
This is the time to start investing and saving for retirement. You have time on your side and, you can afford to experiment.
- Avoid debts
- Avoid overspending and live within your budget
- Move towards higher standard of living gradually
- Follow a structured budget
Building Wealth in your 30s
Your daily living expenses will increase steadily during this period. But you cannot overlook your retirement account.
- Keep housing budget on track
- Secure an emergency fund
- Increase your retirement savings options
- Save for retirement along with kids’ education
Saving in your 40s
- Develop your portfolio
- Let a financial planner help diversify your portfolio
- Avoid drawing money from your retirement account
- Start paying your mortgage if you have one
Building wealth in your 50s
- It’s perfect to invest in annual catch-up contributions like Roth IRA
- Don’t claim money from your social security
- Keep medical insurance updated at all times
How is Wealth Measured?
Your wealth is most often than not, measured by money. The monetary value of any property depends on others’ perception to trade in it. It also depends on the degree to which it is accepted universally. The level of wealth also depends on the external forces that manipulate the value of money.
The Influence of Wealth Creators
Though not a step, surrounding yourself with successful wealth creators is of paramount importance. In fact, it’s more important than you think it ever is. Just think about it, you tend to mirror the mindset of those you hang out with. Vibes can be contagious and, exposure to successful people influences your thinking and actions in a similar way.
In short, you become like the people you associate yourself with. When you get into the company of successful wealth creators, you are exposing yourself to their financial knowledge. You can learn some of the most important facts of financial planning and wealth creation in a more practical way. It’s highly recommended since you will learn new things about finances you never knew existed.
What You Believe is Vital
The way you think about yourself and develop your beliefs play prominent roles in deciding your wealth condition. The wealthiest people have an immense belief that success, achievement and happiness are the way of life. These factors influence their behaviour that eventually shapes their financial success.
Most people remain, average earners because they don’t have the belief that they deserve bigger things. Your thinking is a powerful tool in deciding the quality of your life. The vast majority don’t think they deserve to be millionaires.
However, if you do research, millionaires are exactly that because they think and act on the belief to be millionaires.
Read, Read, Read
One habit that separates the wealthy from the average is reading. Rich people invest regular time to read and educate themselves with all that needs to become successful. And, educating on becoming successful is not only about money but, more importantly, about the means to incorporate to become wealthy.
It could be reading about lifestyle options and changes; it could be about society, technology, cultures and many other useful things other than just the financials. Of course, reading about the markets and financial information cannot be overlooked.
Wake Up Early
What has that got to do with being wealthy? Well, a lot is what the experts say. The wealthiest individuals wake up early in the morning before sunrise. This is because it’s considered the most productive time of any day. Your mind is usually fresh and, you can plan and tackle important tasks before any distractions arise.
Taking control of things early in the day helps you develop confidence with more control over situations. Joining a 4 am or 5 am club can inspire you to get up early and brings vigour into your life.