What Is “Wealth-Building?”
Wealth building is the practice of earning steady revenue from a variety of sources. This comprises assets that produce income in addition to income from a job, such as savings, investments, and any other assets.
The notion of wealth building depends on sound money management and awareness of one’s long-term financial objectives. Many people will turn to wealth creation as a means of securing a bright financial future.
The 3 Steps To Wealth-Building
To build wealth over time, you must follow three simple steps: make money, save money, and invest money. Before investing, it is essential to have a reliable income source that spans your long-term financial future. After a reliable source of income is assured, it is recommended to set a concrete savings plan. Finally, it is time to invest.
1. Making Money
This step may seem obvious, but it is essential to state that a constant source of reliable income over time is fundamental to wealth-building. A small amount of regular savings from this source of income can compound into a substantial amount. An important question to ask yourself is whether or not your current job can provide you with a regular amount of savings for 40 to 50 years. If not, it may be time to look for ways to increase your income.
The two basic types of income are earned and passive. Earned income comes from your regular occupation, while passive income comes from investments. To increase your earned income, you may first have to make changes in your occupation. If you’re considering a career change, ask yourself some questions to help you decide on your new job. For starters, what do you enjoy doing, and what skills are you naturally good at? Finding a job that aligns with areas in which you excel and duties that you enjoy will naturally allow you to perform better and start improving your income. Of course, you’ll also want to make sure that your chosen career will pay well. Consider investing in your education and other forms of training to help you become a stronger candidate for your desired job.
Once you find the proper financial stability, you can start saving and investing.
2. Saving Money
Many people live comfortably after finding financial stability, yet they still don’t save their money well. The second key to wealth-building is setting aside a portion of your earned income regularly. Once you have saved enough, you can start investing to grow passive income. Here are a few ways to to start saving money:
- Keep track of your spending each month, and then crowd out the items, services, and experiences that you don’t actually need.
- Adjust your budget as your experiment to the point in which you’re saving every month, but also aren’t depriving yourself to the point that life isn’t enjoyable.
- Always have about 6 months’ worth of expenses saved in case of emergencies. Having a cushion will help prevent you from derailing your finances every time something unexpected happens.
- Contribute to your retirement plan. If your employer offers a matching plan, definitely take advantage of it. Don’t leave free money on the table.
3. Investing Money
Finally, once you have a stable foundation, you can start investing your money. However, to build a diverse investment portfolio, you will have to take a few risks. It is important to research how much asset allocation is appropriate for you. While you can do this research yourself, using a financial advisor is also recommended for new investors. They can help you gain clarity on your investment goals, time horizon, and how much risk you can stomach. Based on these insights, they can help you build a diversified portfolio that is risk-averse, moderate, or aggressive, based on your preferences.
Note that there are several robo-advisors and investing applications that are beginner-friendly as well.
