For many of us, building wealth may seem like an allusive concept that can feel far off and unattainable. With the mounting costs of day to day life, building wealth can sometimes feel more like a dream rather than an attainable goal.
What if I told you that no matter your financial circumstances, you can take steps to build wealth? That you don’t need to win the lottery, come into a large inheritance, or make a seven figure income in order to build wealth and secure a better financial future.
I believe a truly wealthy person is someone who has enough money that they work because they want to, not because they have to. A wealthy person can walk away from a job at any moment and still lead the life they want.
With everyday intention, planning, and discipline, you can build wealth. Here are four ways you can start building wealth:
1. Establish Good Saving Habits
Good habits lead to good outcomes. I recently finished reading “The Compound Effect” by Darren Hardy. In it he provides the formula “Small, Smart Choices + Consistency + Time = RADICAL DIFFERENCE”. Creating wealth isn’t about hitting home runs. It’s about getting into the consistent habit of saving. When you’re younger and just starting out, you may not be able to save a lot, but save anyway. Set a percentage of your income to save, say 10%, not a dollar amount. Saving just $1 out of every $10 you make will put you at almost double the US Personal Savings Rate. This way, when you earn more in the future you will save more, in dollar terms, and you can even increase that percentage of saving slowly over time. This one decision has the power to set you up for financial success or failure.
The act of saving is amplified when you invest those savings. Investing does not mean keeping your cash in a savings account earning nothing. Investing is putting your money into a well-diversified portfolio of stocks, bonds, mutual funds, and ETF’s and allowing the growth to compound over the long-term. Compounding it arguably the most effective way to build wealth. The reason why this is such a powerful wealth building tool is because the interest you earn on your money also earns interest.
I see way too many people who have an inordinate amount of cash as part of their net worth. While having enough cash is important for emergencies, cash will not make you wealthy. In fact, when inflation is factored in at say 3%, by holding onto cash that is making .05% in your savings, you are actually losing money in real and purchasing power terms.
The younger you start saving and investing, the more time your money has to compound year over year. Let your money go to work for you and give it the chance to multiply over your lifetime.
3. Delay Gratification
In addition to establishing good saving habits, it’s just as important to exercise smart spending habits as well. It may take some time to adjust and form smarter spending behaviors if you are used to buying what you want when you want it. Credit has made it much easier to spend money, even if you don’t have the actual cash to cover the expense, which can quickly lead you into high-interest debt.
Therefore, be mindful about your purchases and delay gratification until you know you have the means to cover the cost. When you already have smart saving habits established, it makes delaying gratification a little more palatable because you will actively be saving for that car, those concert tickets, or the vacation you really want. It’s not that you won’t attain what you want, but with smarter spending behaviors, you won’t compromise your financial security just to get something immediately.
[Related: 3 Crucial Tips for Living Within Your Means]
4. Set Goals and Be Intentional
You’ll be able to achieve your financial goals faster if 1.) you have financial goals and 2.) you make intentional financial decisions. Not unlike attaining a certain physical fitness level, setting goals, being intentional, and taking action all play a crucial role in determining your success. Before you make that next purchase, think to yourself: “Is this purchase in line with my goals? Will I be closer to my goal if I don’t make this purchase?” It’s a simple yes or no answer that should make your decision easier.
When it comes to your finances, building wealth is possible when you take action to secure your financial future and take advantage of wealth building tools that passively grow your money over time. Your long-term financial success isn’t decided in an afternoon; it’s determined by the financial choices you make today and every day.
Start making financial decisions that help you build lasting financial independence. The earlier you start, the more time is on your side to build long-term wealth.
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