When you’re staring at a cloud-covered peak from the base of a mountain, you might wonder if you have what it takes to make the climb. Building wealth could evoke similar feelings.
We can’t guarantee it’ll be an easy endeavor, but there’s no day like today to start your journey toward wealth. The tools for reaching a mountain peak and your financial goals are the same: patience, dedication and a map.
You wouldn’t hike the Appalachian trail without proper preparation. Likewise, building wealth requires a similar level of attention and planning.
A financial plan helps you identify your next steps wherever you are in your journey. To lay a firm foundation for your wealth-building plan, start with these steps:
Don’t hesitate to ask for guidance if the planning stage feels overwhelming. Financial advisors specialize in crafting custom financial plans and can also be an excellent resource for learning tips and tricks to help you with your wealth-building goals.
Automating your savings is like having a spare battery; it’s one less thing you’ll have to worry about if your flashlight or GPS device dies on the trail. When life happens, you want to ensure your wealth-building system still works in the background.
Unexpected expenses like a hefty medical bill can set you back thousands of dollars. While frustrating, you can stay ahead by building an emergency fund. Having cash on hand to pay for life’s surprises can also keep you from taking on high-interest debt like credit cards. To help build up your emergency fund, you can:
Experts recommend saving three to nine months of living expenses, maybe even more. How much you choose to save varies on your lifestyle. Saving an emergency fund can help you avoid debt and build wealth faster.
Wealth building is a long game. Thinking about your finances before retirement ensures you have money when you stop working. Retirement savings accounts allow you to grow your money tax-deferred or even tax-free, depending on the type of account.
With tax benefits and the power of compound interest, having a retirement savings account is critical to building wealth in the long run. If you’re not sure what type of retirement account to open, explore our comprehensive guide to individual and employer retirement plans.
Debt often gets a bad rep; however, it’s not all bad. Good debt like student loans and mortgages can have long-term, positive returns on investment. In addition, these types of “good” debts generally have lower interest rates.
However, bad debt is like bringing too much gear on a hike. Debt can be helpful, but too heavy a load can slow your journey to build wealth.
Bad debt, like credit card debt, generally has higher interest rates, which means all the money you pay in interest is money you can’t put toward your wealth-building goals. So while credit cards are a great way to build credit and earn attractive rewards, interest rates can quickly eat away at your finances.
To keep “bad” debt under control, you can:
If you want more debt-management resources, check out our in-depth guide to slaying your debt once and for all.
If your current income is lower than you’d like, you might wonder how you’ll ever build wealth. While your savings today might be small, you can set a plan to boost your savings by boosting your income.
Now, increasing your income won’t happen overnight. But you can draft a plan today to increase your earnings — which can help increase your savings — over time. You can:
A word of caution: When your earnings increase, resist the temptation to spend more. Maintain your current standard of living and use those additional funds to build your savings or tackle outstanding debt.
If you’re on a multiday hike and realize you have less food than anticipated, you’ll ration your resources differently. Similarly, there are moments in your wealth-building journey where you’ll have to pause and revise your plan.
While most aspects of your wealth-building system should be on autopilot, it’s wise to look back and evaluate your progress. It is also a time to take well-deserved kudos. A consistent review process empowers you to make small changes today that can significantly impact your long-term goals.
Investing in good hiking gear can enhance the quality of your experience. Similarly, paying for good advice or reasonable investment fees can help ensure your assets are well managed. However, fees can add up and take an unexpected bite out of your hard-earned savings.
For example, a 1% annual fee for an initial investment of $100,000 amounts to almost $28,000 in fees over 20 years. If you kept an eye on fees and could bring that down to 0.75%, you’d save $13,000.
To help keep your fees reasonable, make a plan to regularly review:
Minimizing your fees will allow you to optimize your portfolio and maximize your savings. Don’t let unchecked fees hold back your wealth-building progress. But remember: Sometimes you have to spend a little money to make money.
If you need help starting your wealth-building journey, consider talking to a financial advisor. They’re more affordable than you might think, and they can work with you in many ways so that you only pay for the level of advice you need.
A qualified retirement plan is a retirement plan that grows interest tax-free or tax-deferred. Some examples include individual retirement accounts like Roth and traditional IRAs and 401(k), 403(b) and SEP-IRA plans.
You can open an IRA through an online brokerage, your bank or a financial advisor. After choosing where to open your IRA, you’ll complete an account application, fund your account and make an opening deposit (if required).
The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.