Do you think that building wealth has become tougher? Well, you are not far from the truth. It has indeed got harder to increase or build your wealth, when compared to the years gone by.
That being said, the habits which make you rich have not changed at all. In a gist, this is what it all boils down to:
As you can see, these are the funds which you need to lay hands off if you want the funds to grow over time. For instance, once you have started saving for your retirement fund, you should not withdraw any money from the fund. Doing so will derail all the investments you’ve been doing till now, and shall set you back directly proportional to the amount withdrawn.
You also need an emergency fund. To start with, you don’t need to make it huge, but just enough to take care of small emergencies.
Finally, you need to be careful when it comes to your debt, since the wrong kind of debt can eat into your wealth.
These formulas are simple, but these are becoming harder and harder to implement. This is due to yearly inflation and income stagnation. More and more people each year don’t have savings enough to meet unexpected expenses. From 1998 to the current year, the ability to save, or our lack thereof, has produced a 21% fall in household median net worth. Let that sink in or a second.
And who is hit the hardest? The lower-middle class, whose net worth fell by half by 2013.
It is hard to create wealth when the economy does not hold up your income, but it is still possible. The wealthy have these habits that build them wealth.
Pay yourself first: Like we said above, it is important to pay yourself first, or invest in yourself first. This means saving for an emergency fund. If you can’t save a lot for it right now, don’t worry. Put into the emergency fund anything you can spare from your monthly income. Only don’t cheat here. Having an emergency fund is incredibly useful. It’ll carry you through adverse financial times.
Invest for retirement: People in their 20s are in the best position to start saving for retirement since they have a lot of time in their hand to see their money grow. If you still have not started saving for this, it is not too late to do so. Yes, it’ll cost you more per month. But think about it. At least you’ll have a retirement cushion to fall back on when the time comes, And remember, when you retire, this fund shall be your source of income.
Apart from this, you want to save in equities too, such as stock exchange traded funds, mutual funds and stocks. You won’t get much traction by investing in low-risk investments. What you need is investment growth which can outpace inflation. That is where stocks come in.
Handle debt smartly: There is good debt, and there is bad debt. If you want to build wealth, you need to know the difference. Good debts, like student loans, can help you increase your income. A mortgage can increase your property’s equity. Bad loans include payday loans, credit card debt, auto title loans and the like. These are the worst wealth-killers.
Having wealth is not the end of your worries. Even millionaires are not worry-free. But having wealth makes you financially stronger, and helps you to weather setbacks, buy income-producing assets, and much more.