Did you know that wealth is within your reach? You may not become Jeff Bezos overnight, but some changes to your financial practices can give you the fiscal cushion that you want.
From a financial perspective, wealth is the collective value of everything that a person or company owns, including tangible assets such as a home and less tangible ones such as stocks. However, wealth is also freedom. Building your personal wealth gives you freedom from worrying about your financial future and the freedom to use that wealth to enjoy your life.
Building wealth is possible, but it takes time, patience, and care. Here are six steps to implement into your life today that will help you build personal wealth.
- Save as Much as Possible From Your Earnings
The first step to building personal wealth is to have a financial cushion of savings. Long-term savings programs, such as retirement accounts, can ensure that your wealth outlasts your working life and any emergencies. Investing your savings can help you turn money into more wealth.
Before you can start planning what to do with your savings, you need to build them first. Set a goal for how much you want to save each month and be diligent about setting that money aside.
When you get distracted, keep your goal in mind. Maybe you want to save up for several months of living expenses in case of an emergency or you’re hoping to buy a house. Remember that you are saving money for a purpose.
2. Focus on Your Needs, Not Your Wants
As you start on your savings journey, it is often helpful to keep a detailed tracker of all of your spending for at least a month. This helps you identify where you are spending the most money and which expenses you can potentially eliminate. To increase your savings, you will need to spend less because the money has to come from somewhere.
To cut down on your spending, be vigilant about distinguishing between things that you actually need and expenses that just fulfill your wants. You need to pay your gas bill, but do you really need that coffee before work or extra clothing? Even if an impulse purchase could bring you pleasure, compare the satisfaction with the satisfaction you will get from building your wealth.
3. Create a Budget for Yourself and Stick to it
Giving yourself free rein with spending can lead to impulse purchases, but a budget can help you control what you spend. Every month, draw up a detailed budget with how much you expect to spend that month. Include all of your necessary expenses, such as bills, rent, and food. You should also include how much you plan to save in that month.
Finally, when you are drawing up your budget, be sure to set aside a small sum each month for entertainment and frivolous purchases. Building wealth does not mean that you can’t enjoy your life in the moment. You also will not be able to follow a budget that is completely austere. Once you create your budget, do your best to stick to it each month.
4. Cut Down on Expenses to a Bare Minimum
Once you have eliminated most of your frivolous spending from your card bill and have a detailed budget, check again to see if there are any other expenses that you can cut back on. Paring down your spending to the bare minimum gives you more of a cushion to direct your money towards wealth-building activities such as spending and investing.
You may find surprising ways to cut back on your expenses. Can you pay off some credit card debt to avoid interest? How will lowering the thermostat affect your heating bills? Can you save money on groceries by couponing and switching to store-brand products? Get creative and you could cut your expenses even further.
This is also the time to be honest about what you actually need, because you may have convinced yourself that something is a necessity when it was really a luxury.
5. Invest Your Money in a Profitable Venture
While keeping your money in a savings account provides you with a cushion and the money may eventually grow thanks to interest, that is not how you build wealth. To really build wealth, it is not enough to save money: you need to grow it. The best way to grow your wealth is to invest in something profitable.
Luckily, you have many options for investing, depending on the capital available to you, your interests, and your risk tolerance. Invest in stocks, bonds, and other financial equities. If you have large reserves of cash and a tolerance for risk, real estate is a great way to build profit. For the best advice on profitable investing, talk to a financial advisor who can help you build a balanced portfolio.
6. Think Positively and Keep Being Patient
Unless you win the lottery, building wealth will not happen overnight (and even if you do win the lottery, taxes and fees will take off more of your winnings than you may think). The key to wealth-building is patience. Some investments may take longer, but you will be happy that you stuck it out once you see your returns.
The other key is maintaining a positive attitude. Setbacks will happen. Emergencies may deplete your savings or the financial market may suddenly turn, causing your investments to depreciate. Approach everything with an open mind and a positive attitude. You never know which setbacks can turn into opportunities.
Building wealth takes practice and patience, but it is not out of reach. These six tips can set you on the path to financial freedom.