Building wealth is a journey, and like most journeys, the sooner you start, the further you’ll go. Thus, whether you’re saving for retirement, to put your kids through college, or to achieve any other goal, it’s important to start as early as possible.
Because so many factors affect your wealth, you’ll need to begin by coming up with a clear, detailed financial plan.
The specific path you take will vary based on your ambitions, family size, and other factors. But every plan for building wealth must contain these things.
1. Increase Your Income
You can’t save money unless you make money, so the first step in financial freedom is to earn a high income.
Formal education is only part of the process of building skills.
It is equally important to gain practical experience in your field, so begin working at an early age, and do as good a job as possible for every employer you work for.
Even if you’re still in school, you may be able to gain work experience through an internship, fellowship, or part-time job.
Such opportunities are especially valuable if you can get course credit while pursuing them.
Depending on your ambitions and skills, founding a business may be a great investment in your long-term wealth.
While you’ll lose money in the short run, if you understand the industry and run the business well, it will eventually become one of your greatest assets.
Most professionals see their incomes increase over time. Thus if you can achieve high earnings at an early stage, you’re likely to make even later on in your career.
2. Save And Invest
As important as it is to earn large amounts of money, you’ll only build wealth if you save a sizable percentage of those earnings.
If your employer offers a 401(k) plan, maximize your contribution.
Likewise, set up your paycheck to send a large portion of your money to your savings or investment accounts automatically, rather than giving you a chance to spend it first.
The more of your money goes directly to savings and investments, the less of it you’ll think about spending.
Unless you plan to move frequently, purchasing a home is one of the best ways to build wealth.
You’ll have to pay for housing anyway, but unlike renting, you’ll get your house payments back in the form of equity. There are also sizable tax benefits to buying a home.
Interest on debts can consume a large portion of your income, so it makes sense to pay off anything you owe as quickly as possible.
The more quickly you pay down the principle, the less interest you will owe, reducing your total spending on debt service.
Besides maximizing the amount of money you save, make sure to maximize the interest you earn on those savings.
The higher the yield of your investments, assets, and accounts, the faster your money will grow, compounding your savings over time.
3. Cut Wasteful Spending
As your income rises throughout your career, you’ll have the opportunity to devote an ever-larger percentage of your money to savings and investment.
Provided your spending doesn’t rise in tandem. It’s important to look for ways to save.
By improving insulation and investing in more sustainable technology for your home and car, you can reduce the amount of money you spend on electricity and gas.
Homeowners often pay for 1,000 channels but only end up watching four or five.
Consider buying channels individually from your cable provider; the cost per channel may be higher, but your total spending will be lower.
Bulk purchases are cheaper in the long run than individual ones, provided you use everything that you buy.
Almost everyone makes at least some wasteful purchases in their life.
By periodically evaluating your spending and looking for sources of savings, you can cut down on this waste and maximize the amount of money you keep.