Most people assume that wealth is out of their reach. They think if people are wealthy, then they had wealthy parents, or they are a sports or movie star. However, anyone can be wealthy if they work at it. Here is the information you need about how to build wealth.
What is Wealthy?
The first answer that probably comes to mind when asked ‘what is wealthy?’ is having a lot of money, right? That’s what most people assume, and in a way they are correct. However, being wealthy isn’t the same for everyone.
Someone who grows up poor may think of being wealthy as being comfortable and being able to pay their bills without wondering about where they will get the money. Others may believe that being wealthy is synonymous with being rich. If you are rich, then you have enough money to do whatever you please.
Of course, there is also the philosophical meaning of wealth, such as being surrounded by people you love, but this article will not get into the philosophy of wealth. For this article, when referring to wealth, it is referring to making and saving as much money as you can to live on comfortably and be able to retire without having to worry about money.
How Much Do You Need?
The amount of money that you need to be wealthy and retire depends on your age, where you live and how comfortable you wish to live. Generally, it requires a net worth of about $2.4 million to stop working and be considered wealthy. However, to be among the one percent in America requires a large salary.
In places like New Mexico where the cost of living is lower, you will need a yearly salary of approximately $231,276. However, in New Jersey, you’ll need an annual salary that’s over $547,700. Still, other financial experts say you need to save at least $5 million to retire comfortably.
Steps to Wealth
Although $2.3 or $5 million seems out of reach for many people, you can build up to that amount by cutting expenses and saving your money. These steps will teach you how to build wealth and a nest egg that can make your life easier now or when you retire. The steps to building wealth include:
Maximize Your Potential
To save money, you need to make money, but a job at a big box store or a fast food restaurant is not going to help you become wealthy. No matter your age, you need to get a good education to land a good job. Statistics show that by 2020, which isn’t too far away, 65 percent of jobs in the United States will require a college degree.
What about paying for school? There is no doubt that going to college can be expensive. Fortunately, more ways than ever exist to get your education. First, don't go to school out of state. Out of state tuition is much higher than it is for students that stay in-state. Also, you may be able to live with your parents rent-free, which usually includes food, which can save you hundreds of dollars each month.
Second, take the requirements at a community college. Every freshman and sophomore is required to take introductory classes like English, biology, or philosophy. To save money, take these courses at a local community college. You can save hundreds, if not thousands, of dollars by doing this step.
You can also take classes online if you can’t go to school full-time. Most employees now look at online degrees in the same way they do degrees you went to campus to obtain. Just make sure that the school you take courses from is fully accredited.
Increase Your Income
If you're already in the workforce, ask for a raise, volunteer for more hours, or find another job that pays more money. To build your wealth, you're going to need to save a substantial amount, so you may need to make more to do so.
You can also use the skills you have to get a second part-time job. Consider your hobbies and think about how you can make money with them. If you quilt or like to do crafts, maybe you could sell some online. If you do photography or write, look up freelance opportunities that you can do at home on occasion to make more money.
Dump the Debt
The biggest obstacle to saving money is debt, especially high credit card debt. The average savings rate in the US is hovering around six percent, so very few people are saving any of their money. They may be living paycheck to paycheck and cannot save anything, or they are spending it frivolously.
Your house isn't debt, it is an investment because real estate usually appreciates, but credit cards, student loans, and car payments are debt. Stop using your credit cards and pay any balances as soon as you can. Start with the card with the highest interest first and then continue to pay each one off in that order.
Once you pay the credit cards, then you can take the money you were paying for them and put it into an interest-bearing account. Even if it is a low-interest checking account, at least your money will be working for you.
Cut All Expenses
Go over everything that you pay out each month to find places to cut corners. If you pay for cable, ask yourself if you need 200 channels that you may not watch very often. Consider eliminating the cable bill and substitute it with a streaming service. The cost differences in those services may surprise you.
Don't be a sucker and always buy the latest gadget on the market. Do you need to pay $1,000 for a smartphone when you can get an adequate one for about $200? Also, consider a cell phone plan that requires customers to buy phones and only pays for the service. Those plans could easily cut your phone bill in half.
Look at your needs versus what you spend. Many younger people are exchanging their need for the latest fashion, gadgets, or cars by forgoing these purchases because they don't need them. Also, if you live in a city with excellent public transportation, you're only wasting money by owning a car.
You’re paying parking fees, car and insurance payments, plus upkeep on a car when you could take the bus or subway to work. Along with public transportation, you could stay healthy by riding a bicycle or walking to the market to buy groceries when you need them. Plus, by walking or riding a bike, you’re reducing your healthcare costs by maintaining your weight and exercising your cardiovascular system.
Save and Invest Your Money
Take the money you’re saving by cutting your expenses and making more income and put it in interest-bearing accounts. Also, maximize any retirement accounts that you have opened. If you have a 401k at work, contribute the maximum amount to it every year, which is currently at $18,500 if you are under 50. For people over 50, they can save up to $24,500 annually.
Invest your money and stick with it. That doesn’t mean play the stock market, as that can be very risky. Talk to a financial advisor about mutual funds, open an IRA, or use other financial tools to save money beyond the 401k. If you put your money into stocks or mutual funds, leave it there. To make money from the market, it needs to be a long-term commitment. Another good option is investing in real estate
Buy a property that you can turn into a rental so that you can make money from it every month. Then, when you save up enough, buy another property and do the same. If you don’t want to be a hands-on landlord, hire a property management company to make repairs, collect rent, and find tenants for your properties. By doing this, you may be able to start living the lifestyle that you want now.
Protect Yourself and Your Family
Life can be unpredictable, so you need to insure yourself in case something happens, and you can no longer work or die prematurely. By purchasing life insurance, you can make sure your savings and investments are left intact because the policy will pay any necessary expenses if you die.
Also, purchase long-term care insurance in case you get a prolonged illness like cancer to keep from using your savings. If you're married, talk to your spouse about a family plan to make sure everyone has insurance in case of an accident, illness, or untimely death.
While these steps seem simple, they also require you to do some work to save money to live the life you want. Living frugally, saving money, eliminating your debt, and investing in yourself and investing money are the keys to learning how to build wealth.
It isn’t something that will happen overnight, but if you are diligent about doing these six steps, then you can build a comfortable nest egg to live on when you’re ready to stop working.
The above article was researched and written by the editorial staff at WomensWealth.Money.