What is building wealth?
“Building wealth” and “having money” are two very different things. Having money allows you to pay the bills but typically is spent shortly after money comes in. Financial wealth is having a savings account, assets or other investments and can be used advantageously for opportunities throughout your life. Building wealth goes a step further. Building wealth is taking disciplined steps over a period of time in order to achieve financial wealth. Here are three steps to take in order to financially build wealth.
1. Making Money
Building wealth starts with cash flow – money coming in and money going out. Establishing a realistic budget, with saving as a primary “expense” just as important as the other essentials, is the most important part of the equation. If possible, start in your 20s with saving at least 10% of gross income, and you will build a strong foundation for your retirement. Starting later means saving a bigger percentage because the money has less time to compound. But that’s no reason to give up on investing for your future.
2. Saving Money
Setting your savings up to be automatic makes it easy, with payroll deduction into your 401k or 403b at work; or electronic transfers into a Roth IRA or regular IRA, or investment account (if you don’t have a plan at work). Set up an automatic purchase into a mutual fund for the day after the deposit. This step builds the habit and gets us used to not living on the money. Then, when you earn a raise, increase your savings proportionately.
3. Making Wise Choices
Building wealth is all about choices. Choosing to save more money early in your career will jump start your retirement savings. Once you develop the habit of saving first, your wealth will build steadily. Having a retirement nest egg will provide you with choices about how long to work along with choices about what to do with your time and money when you exercise your choice to work less or retire. It also will give you more options when your work situation changes unexpectedly.
It can be painless and liberating to establish a disciplined savings and investing plan. Most of the ideas to successfully build wealth are practical. There is not much that is “sexy” in preparing for a secure retirement, but the critical action is to get started – TODAY!