Wealth, what is it? In a sense, it’s your net worth. Net worth is your assets minus your liabilities.
For a comfortable retirement, you’ll want to see that number tick upwards over the course of your working career.
But how to do you increase your wealth? Are there certain strategies that work better than others?
Let’s take a deep dive into some strategies for growing your wealth.
You want to increase your wealth, decrease your expenses. I can probably list several things you’re wasting money on.
- Restaurant food
- Drinks at the bar
- Movies at the theater
- Interest rate charges
- Frivolous purchases
It’s easy to reduce costs here. Restaurant food and bars – stop going out so much. Cable – cut the cord and sign up for Netflix, Hulu, or go to the library.
Movies at the theater – buy the movie or rent it from the library. Interest rate charges – negotiate your rate, use a balance transfer, or eliminate your debt.
Transportation – use public transport, walk, or ride your bike. Frivolous purchases – wait at least a day before you decide to buy.
Ask for a raise, bust your butt to earn a promotion, which usually translates to higher pay, start a side hustle, become a freelancer, etc. There are several ways available to increase your earning power:
- Drive for Uber or Lyft
- Become a Tasker on TaskRabbit
- Get paid for your skills – UpWork or Fiverr
- Here’s a list of the most popular side hustles – Budgets are Sexy.
Real estate is a great way to increase your wealth. One of the more popular ways to do this is through rental properties.
Do your homework when looking for properties, you’ll want to look at:
- School district
- Real estate valuation
- Property taxes
- Community amenities
- Current listings and vacancies
- Natural disasters
If you find a good property, plan for a 20% down payment to avoid PMI. Once the rent starts flowing, you’ll find your wealth will climb. As you pay down the mortgage, the equity will increase, giving you more assets than liabilities.
Pay down debt
Debt is the number 1 detractor from building wealth. Not only does it prevent you from saving, investing, and/or acquiring assets, but you’re probably wasting money on interest payments.
You need to do what you can to get rid of your debt so you can start building wealth. As you pay off your debt, your wealth will increase because you will reduce your liabilities, which makes your net worth (aka wealth) go up.
In a general sense, there are five ways to help reduce your debt
- Debt snowball – Payoff your lowest balance first. Pay the minimum to all of your other balances and pay the most you can towards your smallest balance. Once that balance is paid off, redirect that money to the next lowest balance, and so on.
- Debt avalanche – Pay down your highest interest debt first. Pay the minimum to all of your other balances and pay the most you can towards your highest interest debt. Once that is paid off, redirect that money to your next highest balance.
- Balance transfer – There are many credit card companies that will offer an interest-free balance transfer. Take advantage of this if you have a credit card balance with a very high interest rate. This will save a lot of money on interest payments.
- Personal loan – Usually for credit card consolidation. Most credit card interest rates are crazy high. You get a personal loan to effectively lower your average interest rate. This will only work for you if you have decent credit, however, so do your homework.
- Refinance – This applies to students loan and mortgages (well really any loan, but these are the most common). You refinance to lower your interest rate, and sometimes (as is the case with student loans) to consolidate.
Increase your savings rate
A very common problem in this country is that people aren’t saving enough. The average savings rate in the U.S. is around 3% (source). That is a far cry from what people really need to save.
So what we have to do is increase our savings incrementally. Start with the highest percentage of your income you can possibly save. If that 1% that’s fine. If it’s 10%, that’s fine too. Just do what you can.
From there, we will take a few months to get used to that extra 1% or 10% not being there. Once you are familiar with less money, bump that percentage up 1. And once you get used to that, bump it up again.
The key is to make small positive changes for a lifetime. A small change each day or week for the rest of your life? You’ll see HUGE results from this.
Utilize retirement accounts
Retirement accounts are awesome. It’s a very effective way to save for retirement.
Plans for individuals – Traditional IRA and Roth IRA (Here to learn more about these)
All four of these vehicles give your retirement savings the ability to grow tax-deferred. Meaning you don’t pay taxes while the money is inside the account. Additionally, three of these four could help lower your taxable income.
The two business plans are contributed to with pre-tax money. More money in the retirement account means less being taxes. The traditional IRA is contributed to with post-tax money, but you could receive a tax-deduction IF you qualify.
Roth IRA you use post-tax money, don’t receive a deduction or a reduction in taxable income, BUT your withdrawals will be tax-free.
Please look at those links for all the information and rules for each plan.
Develop a “delayed gratification” mindset
Having a delayed gratification mindset is so important when planning for your future. Our default behavior is to do the things that make us feel good right now, but it’s almost always in our best interest to delay that good feeling for a better one down the road.
You want that ice cream cone, but it will be more beneficial to your future self if you forego it and eat something healthy instead. You’d like to buy a new video game, but it would behoove you to buy a book, a course, or invest it.
Improve Financial Literacy
If you want to grow your wealth, you have to know what you are doing. Learn about budgets, retirement plans, and investing. Learn about assets and liabilities, and the various ways you can make money work for you.
If you know how things work, it’ll make it easier for you to follow through.
Automation can play a vital role in your quest for growing your wealth. Set your bills to auto-pay. This allows you to focus on more important things.
Also, automate your savings. Have it done right away so you don’t have the opportunity to spend it. Go next level with this and set your savings to automatically increase every so often. You’ll save more without even having to think about it.
Invest in yourself
Ben Franklin once said, “An investment in knowledge pays the best interest.” If you want to get promoted at work, get paid more for your skills, or just want to improve your life, invest in yourself.
Read books, take courses, listen to podcasts, watch YouTube videos, or find a mentor.
There is so much knowledge out there and there are so many opportunities to improve your life. Take the initiative and go get it!
Growing your wealth can be a challenging endeavor, but by using many of these tips, you can be on your way to making some very positive changes.
To learn more about growing your wealth and for our disclosures, visit www.crgfinancailservices.com.
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