Most of us find the idea of becoming an overnight millionaire appealing, but in reality, building wealth takes time.
To build wealth that you can enjoy in the future, you need to have a long-term perspective. The quicker you can start your journey, the more time you’ll have to grow your wealth.
Let’s cover the 10 best ways to grow wealth that you can start implementing today to reap the rewards in the future.
1. Track Your Spending and Stick to a Budget
When you want to start your journey toward building wealth, one of the fundamental steps is to track your spending and stick to a budget.
The money that comes in and leaves your pocket is critical to your financial life. You need to learn how to manage it to increase your wealth over time.
One basic step to managing your finances is to track what you earn and spend. When you start tracking your spending, you will begin to notice patterns and realize the areas you can lower your spending. For example, you may have subscriptions you have forgotten about, or you may not realize the amount you spend on takeout every month.
You should live within your means, and if you live below your means, it’s a good start. If you earn just enough to make ends meet, you need to find ways to cut your spending to have cash available to save and invest.
Creating a budget will help you keep your spending as low as possible, so you have more money to set aside for building wealth. A budget will help you prioritize your spending depending on what is most important to you. You can choose where you spend your money more freely and in what areas you can cut down.
2. Pay Off Debts
When you start your wealth-building journey, pay off any debts before investing.
Work out how much you owe and the rates you’re paying. You can start by repaying the debts with the highest interest rates first since they are the most expensive. You can also increase your monthly repayments on credit card debts to clear the balance quicker. Or consider switching to a card with 0% balance transfers.
Additionally, consider consolidating your debt into one loan with a lower interest rate. This can make it easier to manage your monthly payments and can also save you money in interest charges over time. Another option to consider is working with a financial advisor or credit counselor to help you create a debt repayment plan. They can help you prioritize your debts and devise a strategy to pay them off as quickly and efficiently as possible. Remember, the key is to focus on paying off your high-interest debts first and then working on your other debts. This can help you to save money in the long run and get you on the path to financial freedom.
3. Save and Invest Your Income
Most people grow wealth by investing and earning compound interest with their pension. If you want to work until you reach the legal retirement age, and enjoy your retirement money for a few years before you pass away, then you can contribute 10 to 15 percent of your income toward your pension pot.
In addition, if you want to build financial independence to be free from constantly working to receive a paycheck, then saving 10 percent may not be enough.
You need to aim to save at least 20 to 30 percent to achieve financial independence before you’re in your 70s.
4. Earn More Money
Once you have reduced your spending and are looking for other ways to save more, you can consider earning more money.
Many people think that they don’t have control over their paychecks. But you can be active and determine how much you earn per year. A few ways that might help you earn more money are as follows:
- Develop in your career and negotiate for a raise
- Look for jobs with higher pay and negotiate your starting salary
- Start a side business or freelance on top of your day job
While investing is one way to create more income, it will take a lot longer. Sometimes, for your money to start generating income by itself will take years or decades.
5. Place your Wealth in Assets, Not In Material Items
As you start to earn more money and have more to spend, save or invest instead of buying things. When you invest your money in assets and not in material things, you will build wealth. Assets will usually increase in value over time rather than depreciate like material objects, such as cars or fancy gadgets.
When you own assets, you can have a safety net to fall back on rather than if you spent your money on things that would have no real value after some time.
So, if you want to grow wealth, focus on owning assets rather than spending it all on objects to show off to others.
6. Accept the Risk
Any investment comes with some degree of risk. The sooner you accept this, the sooner you can begin to invest your money and ultimately grow wealth. Accepting risk may seem scary when you begin your financial independence journey, but accepting some level of risk will help you generate a return on your money.
It’s also important to note that having cash can come with a lot of risks. Placing all your savings in a bank account can lower your purchase power because of inflation.
Furthermore, it’s important to diversify your investments, as this can help to mitigate risk. Diversifying means spreading your money across different types of investments, such as stocks, bonds, real estate, and cash. This way, if one investment performs poorly, the others may still perform well, helping to balance out your portfolio and reduce overall risk. Additionally, it’s important to consider your own risk tolerance and invest in a way that aligns with it. A financial advisor or planner can help you assess your risk tolerance and develop a portfolio that fits your goals and comfort level.
7. Pay Attention To the Little Details
Most wealthy people take the time and care to ensure they have the small details right. Individuals who’ve built wealth know the foundations and practice those beneficial habits consistently.
You can also practice some of these simple but important things to ensure you grow your wealth over time.
Aspects to consider:
- Prioritize your goals and values, and know what to spend your money on and what to avoid.
- Keep a close eye on your finances. Stick to your budget, invest and spend time learning about how to manage your money better each month.
- Create systems and processes so you can automate your savings and investments. This will mean you won’t get drawn to temptations, be distracted from your goals, or make human errors.
- Know your weaknesses and know when to do your research to find a reliable answer.
- Ask for help and support. You can use coaches and objective financial planners as a form of accountability and learn from them.
8. Minimize Your Taxes
You always need to think about ways to minimize your taxes, no matter your income level. Over time, taxes can make it harder to build wealth since you can lose money from your income and investment returns.
There are a few things you can do to cut down on your taxes, such as:
- Maxing out your 401k or 403b
- Using an Individual Retirement Account (IRA)
- Benefiting from a Health Spending Account (HSA).
If you don’t want your wealth to be eaten away by taxes, then prioritizing and keeping this step in mind is important when you make any money decision.
9. Take Advantage of Insurance
Another rule is to ensure you protect your wealth and your family with insurance. This can be life insurance but also health and disability insurance.
You may not realize how much you could pay for medical bills. If you face any health issues, medical bills can be costly for your wealth. So, it’s important to protect yourself with insurance.
Additionally, you should also consider protecting your assets with property and casualty insurance, such as homeowners or renters insurance, to protect your home and personal belongings in case of unexpected events like fire, theft, or natural disasters. Disability insurance can also be important, as it can provide income if you cannot work due to an injury or illness. And don’t forget about liability insurance, which can protect you from lawsuits.
It’s important to review your insurance coverage regularly and ensure you have the right coverage for your needs. This may involve shopping around for the best rates and coverage options or consulting with an insurance agent or financial advisor. Remember, the goal is to have enough insurance to protect you and your family from financial loss, but not so much that you’re overpaying or wasting money on unnecessary coverage.
10. Buy Rental Property
An essential part of building wealth over the long run is to earn passive income. You can generate passive income by owning one or multiple rental properties. By managing your rental properties well, you will earn an income consistently with little extra effort on your end. You do have to find tenants and sort out any maintenance issues, but your income will essentially be automated.
Another benefit is that the rent will increase over time, unlike your mortgage repayment. This means your tenants will pay some or all of your mortgage while your property’s value increases.
Ultimately, if you want to build wealth, you must plan and prepare to be on the wealth-growth journey for the long run. We may glamorize and look up to stories of overnight millionaires, but such cases are rare. In reality, building wealth takes a lot of effort and is a constant learning journey. And the sooner you start implementing the steps outlined in this article, the more time you’ll have to learn and build wealth.
Asma is a freelance writer specialising in finance and business niche topics. Her experiences include working at one of the world’s oldest and largest asset management firms.
Apart from writing, Asma also enjoys reading about finance, business, and entrepreneurship.
