There are lots of ways to build wealth. Here are three common factors in many of the most successful strategies. When these factors are combined, good things can happen in a relatively short amount of time.
1) Start small.
The path to building wealth is not typically a few giant leaps. It is more often a lot of small steps. You are likely better starting small and increasing over time.
2) Save automatically.
You may have heard the phrase “pay yourself first” , and this is what it is all about. Make saving an automatic part of your monthly spending plan. Every month when you are paying bills, make sure you are saving. A cash reserve is the best place to start, and once you have accomplished a comfortable cash reserve, you can start building wealth for your future. Refer back to Foundation #2 for additional details on cash reserves.
If your employer provides a retirement savings plan (401(k), 403(b) SIMPLE IRA etc…) this can be a great strategy. Start small and save some money out of every paycheck. There are many different types of employer plans so don’t get too hung up on the differences. Just start saving something. If your employer is going to pay you to save through a matching contribution, that makes it even better!
If you are self employed, you can look at setting up your own savings plan. You should consider talking with a competent financial planner to help you pick which business plan is most appropriate for your needs. If you don’t think you are ready for that, consider saving automatically into savings account. The key here is to make it happen automatically.
3) Continuously improve.
Once you have adjusted to your small savings starting point, try saving a little more. Every month, quarter and year, re-evaluate the amount you are saving. This might be increasing from $25 per paycheck to $50 per paycheck or it might be going from $1,000 to $1,050. If you are able to ratchet up the amount you can save every year, you will likely be better off in the future.
Having a clear vision of why you are building wealth makes this process a great deal easier. Saving money for the sake of saving is not exactly an easy process. Once you have an idea of what you are saving money for, saving money becomes much easier. It gives you the power of comparison.
Do you want to save money? Maybe, or maybe not.
Do you want to save money so you can buy a house, buy a car, pay for educational expenses, become financially independent?? Now you have something to compare.
Would you rather have _____ or _____? i.e. Would you rather have a new gadget/outfit or be able to buy a house?
The ability to compare something to your goals makes the saving process much easier. If you are making an educated and knowledgeable decision, you will likely make better decisions than just reacting to whatever you might be faced with financially.
If you do not have a clear vision of what you are trying to accomplish, consider talking with your friendly local fee-only financial planner. If you do not have a relationship with a fee-only financial planner, let’s start a conversation here.
Next time, I will review Financial Fitness Foundation #4 – Using Debt Wisely.
I look forward to your thoughts and feedback via Facebook or email. Please let me know what you think and if there is anything specific you would like me to address. I have gotten lots of great questions and have several topics for future posts, but I want to make sure this is valuable for you. Please let me know what you would like to learn more about.
*I am not recommending anyone buy or sell anything specific, nor am I recommending any specific suggestions. Everyone should discuss their individual situation with their own financial planner and develop a plan they feel comfortable with. Please talk with your financial planner to obtain specific financial planning advice. There are risks involved with everything. Do not invest in anything you do not understand. Refer to investment prospectus’ etc. for details on specific investments.