The topic of building wealth is always a hot one. When it comes up, people are careful not to be misled.
So you may be wondering whether these three steps here are a misleading concept. They are not.
There are the three wealth building steps.
- Make money
- Save money
- Invest money
That’s all you have to do. They seem simple but following them is much harder than you think.
Take a closer look at each one of them.
Make Enough Money
People talk a lot about how saving small amounts regularly can help you accumulate a large amount over time. But no one talks about this side of the story. How should people make enough money to save?
Cutting costs seems like a good idea but there is a limit. If you cannot cut down your expenses more than you already have, find a way to earn more.
Income is divided into two major categories: passive and earned. Passive income comes from investments while earned income is what you get from your job.
For those that are in the middle of changing their career or those that are starting out, here are four things to consider.
- What is your passion? Your chances of succeeding financially are higher if you do what you love.
- What is your area of expertise? Find something that you are good at and use the skills to make money.
- What job will pay you well? It is wise to get a job that aligns with your expectations financially.
- How do you get there? Now think about what you have to do to land that job—in terms of training and education.
With these things in mind, you will be on a journey to success. Remember to be proactive and open-minded.
Save Enough Money
So you already make a good amount, have a good standard of living but you can’t manage to save enough. Why is that? It is because your expenses go above your budget.
Follow the steps below to live within your budget or to create one.
- Monitor your spending for a month.
- Cut back. If there is an unnecessary expense, remove it.
- Adjust. Keep adjusting your budget as needed to suit your needs.
- Build a cushion. Save a few months’ worth of expenses for emergency.
- Get matched. Start contributing to your employer’s 403(b) or 401(k).
Invest Money Wisely
With sufficient income and the ability to save, it is time to take some risk and start investing in securities.
But first, assess your situation. Things that you should consider include liquidity needs, tax considerations, time horizon, your household income, etc.
Find the asset allocation that works for your needs. It is advisable to find a financial advisor so they can walk you through everything. The allocation should include equities, fixed income, cash and alternative investments.
Young investors can take more risk because time is on their side.
Remember to diversify your investments and avoid the temptation of timing the market.