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How you get there will look different depending on your goals, but as complicated as it might seem, building wealth isn’t rocket science.
There are fundamentals everyone can apply to work toward and eventually cross their “finish line,” whatever that may be.
In the article below, we’ll cover the top five wealth creation tips you need to lay the foundation for your current and long-term financial vision.
To start, you need a set of goalposts to aim for. But they need to be within reach. If they aren’t realistic, you’ll be more likely to fall short.
So, based on where you are currently, start by defining some specific short- and long-term financial goals. For example, a short-term goal might be building enough savings for an emergency fund. A long-term goal could be to have all your debts paid off by age sixty.
If you notice, these goals are clear and measurable. You can easily calculate how much you’ll need to save for an emergency fund based on how much you spend on living expenses. For the goal of paying off debt, you have a set end point (60 years old), so you can break down the process into more manageable pieces and track your progress along the way.
These concrete figures allow you to work your way to success step by step, and provide clear evidence of progress, which is a great motivator.
Once you’ve secured a job or multiple jobs that allow you to put money aside, your first step should be to build an emergency fund.
No one can dodge the occasional illness, car trouble, or unexpected layoff. But with an emergency fund, you’ll have a comfortable safety net to fall back on until you’re out of the woods.
The most common recommendation is to have anywhere from three to six months’ worth of expenses saved. To get started, calculate how much you spend on groceries, gas, bills, rent or mortgage, insurance, medications, etc., each month, multiply by the number of months you prefer, and you’ll have your target. Next, calculate how much you can reasonably commit to your emergency fund each month. From there, you’ll be able to accurately predict how many months it’ll take to reach your goal.
If you get hit with a layoff or a crazy medical bill, a well-stocked emergency stash will mean you won’t have to worry about pulling from your grocery or gas money.
At the end of the day, wealth building is a numbers game. If you spend all your disposable income, you’ll have nothing left to save and invest. That’s why one of the top wealth creation tips is to live below your means.
This tried and true method won’t just help you keep your spending in check. It’ll also help you reach your financial goals faster. The quicker you can finish building your emergency fund, the quicker you can move on to the next thing, whether that’s paying down debt, working towards buying a car or a home, or implementing the next wealth creation tip on our list…
Putting all your eggs in one basket can leave you vulnerable. If your only source of income is your full-time job and your company goes through a round of layoffs, you could be left with no cash coming in.
You’ll have your emergency fund, of course, but the goal should be to pull from it as little as possible.
Diversifying your income will bring you more financial stability and boost your wealth-building potential, and there are a number of ways to make it happen. For example, you could put your money in stocks, real estate, or start a side hustle.
If you’re considering investing, don’t go in thinking you need a boatload of money to get started. Many investment apps and online platforms allow you to kick things off with a very small amount. In addition to dividends from stock investments, it’s not uncommon for people to have passive income from rental properties and side businesses.
This extra cash will ensure your financial foundation remains secure through the unpredictable storm of the market.
With your emergency fund, you’ll be protected against most unexpected expenses. But when you’ve spent years building wealth and maintaining your livelihood, you'll want an extra line of defense to safeguard your car, home, and other belongings.
That’s where insurance comes in.
Car insurance is required in almost every state, so chances are you already have it. But if not, you should strongly consider opening a policy. You can’t control how other people behave on the road, and if you wind up in a wreck, it could save you tens of thousands of dollars.
A home is typically the most valuable asset in the average person’s portfolio, so it makes fiscal sense to protect it. If there’s a fire, flood, storm damage, or other emergency, a good home insurance policy will help replace what you’ve lost.
Beyond home and auto, a life insurance policy is definitely worth looking into, especially if you have a spouse and dependents. The average life insurance payout is around $168,000, so if something happens to you, your family could receive generous financial support in their time of need.
When you build capital through diversified income streams, spend modestly, and take steps to protect your wealth, you set yourself and your family up for a secure financial future.