Wealth accumulation is a simple concept but it can be difficult to implement. It requires a desire to build wealth, devising a plan, commitment, getting out of your comfort zone, personal sacrifice and time. Many people will not achieve wealth because they don’t think they can. Or they think it’s only for a chosen few, such as people born into money, people smarter than them, people with better jobs or those rare game changers like Steve Jobs. In reality, anyone with a burning desire and perseverance can implement the wealth building formula. The simple formula for building wealth is to spend less than you make and use a portion of the difference to invest. Step one involves personal sacrifice. In this step, you decide your money is more valuable to you when it makes you money versus when you spend it on a want, or a status symbol. Step two requires formulating a plan that details how you would put this money to work. This step requires you to step outside your comfort zone by doing research, asking people who already built wealth how they did it, trying new things, and waiting to see a return on investment.
What is wealth anyway? Oxford defines wealth as an abundance of valuable possessions or money. I define wealth as the time you can sustain your lifestyle without having to go to work. Let me ask you, what is wealth to you? The definition of wealth is subjective and changes from person to person but one thing they all in common is abundance. Abundance is simply having more than you need. In this blog post, I am going to layout different steps you can take to start building monetary abundance (aka building wealth) in your life.
Tips to building wealth
· Max out employer sponsored retirement accounts (401(k), 403(b)): Contribute to employer sponsored retirement accounts and take advantage of that free money. The goal is to contribute up to the employer’s match percentage. If the employer matches 100% up to 8% of your contributions, you would contribute 8% of your earnings to take full advantage.
· Spend less than you make: Take the time to get to know your spending habits. Track your spending. Review you spending then separate needs versus wants and cut unnecessary spending. Devise a livable spending plan and commit. In your spending plan, have money to live, money for fun and money for your emergency fund.
· Save up a 3-6 months emergency fund: It’s just a matter of time before an emergency will arrive. Protect yourself by setting aside a buffer. The amount of buffer is up to you and how much security you require to feel prepared.
· Open a separate bank account dedicated to saving money for investing: After your emergency fund is full, continue to save money but place it in this account. At this point, you need to start doing your research about what you’re going to do with this money. Network and connect with people who are already investing and who are better off than you are. Get curious and ask them questions. Get imaginative. Seek out professionals.
· Invest: After, you have devised a plan work the plan. Take action and start.
Various ways to invest
· Pay off debts: Debt robs you of your money. The money you are sending to Sallie Mae or Visa could be channeled to increasing your net worth. The faster you pay off debt the less interest you pay in the long run and the less you pay your lender. If the debt is not helping you make money for example a mortgage on a rental property, pay it off as soon as possible.
· The Stock Market: When you buy stocks, you buy a portion of the company (share) with the hopes that its value will increase. You can invest in stocks individually or through mutual funds and ETFS. Mutual Funds and ETFs house portions of various stocks in one bundle so you can diversify. Remember, do you research, learn your risk threshold and seek out the help of professionals such as Financial Advisors.
· Bonds: When you purchase a bond, you are loaning a company your money with interest overtime for a profit. Do your research and seek out the help of professionals.
· Real Estate: This is a great vehicle because the population will only increase and people will always need somewhere to live or to build businesses. In addition, there are tax advantages for this business.
o Different ways to get into real estate:
Buy and flip: Buy a property at a lower cost, do repairs if necessary and put it back on the market at a higher price for a profit.
Rent out the property: Become a property owner. Collect monthly rent that pays off the property’s mortgage. Address any issues that arise. Keep the tenant happy. In this scenario, you must have access to capital for any emergency repairs. When the mortgage is completely satisfied, monthly rent becomes mainly profit.
House hack: This is when you buy a multi-family home live in one unit and rent out the other units.
Airbnb: You can rent the house as your own hotel for traveling guests.
· Start your own business: If you have specialized knowledge, which people will pay for your services let them. Get a LLC if that’s right for your business, develop products and deliver to customers. Take the leap. You can start it as a side gig and as your sells grow and you reach your sustainable goal convert it until a full time job. Develop systems and products that can sell without you trading time for dollars. For example, online training courses, e-books, physical products that you don’t have to manufacture and ship out. Take advantage of the many tax breaks and incentives that are exclusive for business owners.
· Own a portion of someone else’s business: You can own a portion of their business and let them do all the work while you collect your portion of profits. Make it a goal to own 10% of 10 different businesses.
· Peer Lending: Lend your money to others and collect interests.
· Invest in your education: Gain new knowledge and skills that would take your current career to the next level with a high salary.
In closing, the formula for building wealth goes beyond just saving and waiting. It involves investing, taking a portion of your money to make money itself. Money has an advantage over us in terms of making money. Money doesn’t have to sleep, it doesn’t get sick or injured or need mental health days. I provided ideas to get you thinking but you know what's best for you. Do your research; take your time to get to know yourself, your level of risk and to know more about the route(s) you want to take to invest your money. All investment carries risks. That is why diversification is so important to mitigate some risk. Take the time to seek out professionals for their advice but remember in the end it’s your money and your decision to make. You have the power no matter their title. Have fun with this; come up with some money goals and life goals that require the accumulation of money. You work hard and you deserve it.
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