Why do we seem to make the simple things in life more difficult? Take getting out of debt for example. At the core, it’s pretty simple – stop racking up debt, and start paying more on the balance to knock it out!
But the simple things in life aren’t always easy, are they? There’s a difference between the two. Building wealth is not easy, otherwise everyone would be doing it. In fact, it’s very hard, but that doesn’t mean it isn’t simple.
Simple just means it isn’t complicated. Building wealth is not highly involved. In fact, in a few steps you can build wealth. Unfortunately, the majority of folks in America don’t seem to follow these three simple steps.
Becoming a millionaire or just building wealth in general, as this article from Free Money Finance describes, is simple. Although I don’t agree with FMF’s title (he says it’s easy), it’s still a great post to make the point. Below you’ll find my thoughts on his steps to building wealth:
1. Spend Less Than You Earn
If you want to build wealth, the first thing you’ll need is income. No money, no wealth. But, unfortunately I’ve seen time and time again in my business where even folks who are making a good income don’t have much to show for it.
They spend way more than they earn, they live paycheck to paycheck, and they continue to increase their lifestyle with every increase in income they receive.
One thing is clear: in order to achieve the goals you have – whether it’s paying off debt, saving for emergencies, building wealth, or funding your retirement accounts – you must spend less than you make!
How to do it: Set a certain percentage you will save from each paycheck and adjust your budget to help cut back on expenses so you can save more.
2. Invest Your Savings Regularly
Once you set a certain percentage for savings from each paycheck, then you’ll need to figure out where to put it. You can invest into accounts like 401(k)s, Traditional IRAs, Roth IRAs, or non-retirement accounts as well.
Once you figure out what type of account you’ll be investing into, then you need to decide what type of investments to hold in these accounts. These can range from index funds, mutual funds and ETFs to stocks or CDs. There are an endless array of investments to choose from.
The best way to invest wisely is to diversify your money in a portfolio with good-performing, consistent investments.
How to do it: Regularly invest your savings into this diversified portfolio. Consistency is where you will see the traction toward building wealth.
3. Do This for a Long Time
Setting a certain percentage aside for savings, investing those dollars in a well-diversified portfolio of solid investments, and doing it for a long, long time is when you will take things to the next level.
Not taking advantage of compounding interest is one of the biggest mistakes we can make with our money!
When you let time work for you, reaching your goals becomes much easier. That’s why you always hear advisors and bloggers say to start saving early in life!
How to do it: What are you waiting for? Don’t waste any more time, just do it!
Set a target percentage to save and invest into a well-diversified portfolio, and do it for a long time . . . . You’ll thank me 25 years down the road!
What are some other steps to building wealth? If you’ve built some wealth, how did you accomplish that? Leave a comment!