Most of us have dreamed of someday being financially wealthy but how do we actually become wealthy? Here’s the 101 on building wealth. If you can learn to do these things well then you’ll find yourself on the path to financial success.
The first step to wealth building is to create goals. In order to set a goal you need to figure out what it is that you really want to achieve. Maybe your goal is to have a comfortable retirement where you can afford not to worry about working and can focus on spending more time with your family. Maybe your goal is to save up for you child’s college education. Whatever you goals are you must be able to define them. For example, your goal should be something like: when I’m 65 I want to have at least $500,000.00 in my retirement fund.
Once you have determined your goals you must create a plan to achieve your goals. Your plan should consist of a step by step process that will get from where you are now to where you want to be. Incorporating a forecast into your plan is very helpful. To build on our previous example, in order to have $500,000.00 I will need to put away at least $410.00 every month for 30 years at 7% compounded interest. The steps here are simply to put $410.00 away every month in an investment.
Key # 1 to wealth building is to maximize income. The idea of this key is to figure out ways to bring in the most amount of income that you can. To do this you could look at several different opportunities in your life. Maybe you could ask for an extra shift at work, maybe you have a hobby that you could monetize, or maybe you need to find a better paying job. For a business owner, maybe it would consist of taking on a new client.
Key #2 is to minimize spending. One of the ways to do this is look at your recent checking account statements and ask yourself what expenses you can do without. Did you really need all of those expensive espressos at the drive up coffee stand or could you have brewed your own coffee? Did you need to go out to eat so often or could you cut back and save some money there? The main idea of this key is to find ways to cut out unnecessary expenses.
Key #3 is to maximize your contributions to investments. Your goal with this key should be to invest enough to eventually achieve financial independence. Financial independence means that your investments will eventually be making you more money on an annual basis than the amount of your annual expenses. In other words at the end of the year you’ll have more money than you started the year with even after all of the expenses for that year. This is an excellent retirement goal. There are many different types of investments out there like rentals, mutual funds, and many more. The investment that you invest in will depend on things like risk tolerance, investment duration, and cash flow requirements.
To wrap things up make sure to remember that to maximize building wealth you must have goals, create a plan, and follow the three wealth building keys: maximize income, minimize expenses, and maximize investing.