How to Build Wealth as You Age: a Comprehensive Guide
The earlier you start building wealth for yourself, the better off you will be throughout your life. Wealth can mean a lot of different things to different people, but almost everyone can agree that the main purpose of accruing wealth and protecting your assets is primarily to be able to live comfortably in retirement.
According to Annuity.org, “twenty-two percent of Americans have less than $5,000 saved for retirement, and 15 percent have no retirement savings whatsoever.”
You don’t have to be part of the percentage of people who aren’t preparing for retirement—you can start doing something about it today.
Building wealth seems like such a daunting task to many, but it doesn’t have to be.
There are always little steps you can be taking at any age of your life that can help set you up for success so that you can enjoy the freedom that retirement has to offer when the time finally comes.
In this article, we’ll share 14 tips that can help you get serious about building wealth for yourself, your spouse, and your family as a whole.
Tip #1: Commit to Learning
The first step you need to take to build wealth is to simply start educating yourself. The biggest barrier to putting yourself in a better financial situation is a lack of knowledge about how money works.
Thankfully, this is an easy obstacle to overcome as an individual because the internet is full of websites, articles, videos, and podcasts that can teach you everything you need to know about things like saving, investing, retirement, debt, insurance, and asset protection.
A simple Google search on any of these topics will present you with more information than you would ever need or have time to consume.
The best thing you can do is start searching and learning one topic at a time.
Tip #2: Create a Budget
Creating a monthly budget can help you better understand and keep control of how much money is coming in and going out of your accounts each month. Without a budget in place, it’s easy to live above your means and difficult to plan far ahead into the future.
To create a budget, start by educating yourself about what a budget actually is and how to put one together for your own family.
Once you understand how to put a budget together, use a tool that makes sense for you and your family. Some people use Excel spreadsheets to manage their budget, some use the built-in budgeting tools that many banks now offer to customers, and others use budgeting and financial planning apps like Mint.
Tip #3: Eliminate Your Debt
Before you can begin saving and investing your money, you need to focus on eliminating your debt.
One popular method of eliminating debt made popular by Dave Ramsey is known as the Snowball Method.
Here’s how it works: you start by listing your debts from smallest to largest. Then you make the minimum monthly payments required on all your debts except the smallest one, which you pay as much as you can until it’s gone.
When you have eliminated your smallest payment, take the monthly payment you were making on it and apply it to the next smallest payment in your list until that debt is gone. Repeat this process until you are debt-free.
Tip #4: Build an Emergency Fund
Read any money management resource and almost all of them agree that one of the best things you can do for yourself and your family is to build an emergency fund as soon as possible. An emergency fund is the equivalent of 3-6 months of your salary.
The purpose of an emergency fund is fairly obvious: it’s for emergencies. Medical emergencies, job loss, inability to work, broken home appliances—these are all easier to stomach and deal with when you have an emergency fund in place.
Most people will tell you that you should have a solid emergency fund in place before making any sort of investment with your money.
If saving 6 months of your salary seems unrealistic right now, don’t fret. Just set a more realistic goal for yourself and your family and stick to it. Once you have the emergency fund saved, try not to touch it, otherwise, you’ll be forced to start over again.
Tip #5: Invest Your Money
Saving money is a great way to put yourself in a better position financially, but it’s not the best way to set yourself up for success later in life. If you want to be in the best position possible, a lot of financial experts recommend investing your money as opposed to keeping it all in savings as cash.
In one national study of millionaires, Ramsey Solutions found that “3 out of 4 millionaires (75%) said that regular, consistent investing over a long period of time is the reason for their success.”
You can invest in your own 401K, the stock market, physical property, or even cryptocurrency. That being said, it’s important to keep in mind that some investment opportunities are riskier and more volatile than others, so before you decide where to invest, we recommend you speak with an actual licensed financial advisor or investment professional.
Want to see the cost of not investing your money? Take a look at this infographic from NerdWallet.
Tip #6: Focus on Saving More
Having some amount of cash on hand in savings is not a bad idea. The easiest way to ensure that you’re building up your savings and not spending too much is to automate deposits from your paycheck directly into your savings account.
Most employers use payroll tools that make this easy to set up—you can split your paycheck and have it deposit into one or many different accounts. If you can’t do it through the payroll tool your employer uses, you can set up a deposit or transfer using your bank.
Remember the phrase, out of sight, out of mind? That’s how you should approach your savings account. The less you have to think about it and the more you can automate it, the better.
Tip #7: Earn Side & Passive Income
If you have the time and motivation, creating a business that brings in passive income in addition to income from your full-time job can be a great way to set yourself up for retirement. There are many different ways to earn passive income. Some people become freelance writers, some buy investment properties, and others launch ecommerce businesses or teach online courses.
If you’re looking for an idea that you can get excited about in the year ahead, take a look at this list of passive income business ideas from Shopify.
A word of caution: make sure you understand the tax implications of starting your own business before you get too far along in the process. We recommend you speak to a certified tax professional or account before making any decisions about how to earn passive income for yourself and your family.
Tip #8: Purchase Insurance For You and Your Loved Ones
Another way to ensure that you and your loved ones are protected financially in life is to purchase insurance for yourself and your family members.
Medical insurance is a given, but you should also consider looking into purchasing life insurance and short-term disability insurance, especially if you don’t get any sort of plans through your employer, or if you are the sole income provider for your family.
Want to learn more? Check out this helpful guide on life insurance from PolicyGenius.
Tip #9: Make Retirement a Priority
Like many of the tips we’ve covered so far, the sooner you start contributing money to your retirement, the better off you’ll be. Many employers offer 401K plans as part of the benefits package offered to employees. If your employer has one and offers to match contributions, take advantage of the opportunity.
In addition to a 401K, you can also open a Roth IRA. The main difference between a 401K and a Roth IRA relates to when you pay taxes on the money you’ve contributed.
You can learn more about 401Ks and Roth IRAs by visiting this article from Charles Schwab.
Tip #10: Plan For Big Child Expenses
When you welcome your first child into the world, you’re usually more focused on diaper expenses than college expenses, but time flies! Before you know it, you’ll be sending your kid to their senior year of high school and wondering how you’re going to pay for the next four years of their undergraduate education.
Do yourself a favor and don’t put off the financial planning of such an important life event until the last minute. Start saving for your child as early as you can. Many financial institutions offer tax-friendly college savings plans that you sign up for, to help you start planning early and put you and your child in a better financial position when it comes time to send them off to college.
Tip #11: Live Below Your Means
As your income rises, it’s tempting to spend more when you make more. Resist the urge to do it—you will be in a much better position later in life if you can commit to living below your means, even if you’re making good money.
Living below your means might mean buying a used car instead of taking on a new car payment. Or it might mean staying in the same house until you retire, rather than moving to a bigger house when you have a bigger income.
By living below your means, you’re giving your future retired self more wiggle room to live comfortably until the end of your life.
Tip #12: Work With a Financial Planner
A financial planner can help you set financial goals, understand how to get the most out of your money, and help you identify steps you can take to put yourself in a better position in the long run.
Because we are not financial experts, we strongly recommend that you meet with a licensed or certified financial planner or financial advisor before making any of the changes or recommendations offered in this article.
Tip #13: Protect Your Assets
Another important part of building wealth as you age is working to protect your assets. As you age, you become more of a target to criminals seeking to steal your information or assets for their own personal gain.
For example, criminals steal home titles to gain access to the equity you have built up in your home. They aren’t interested in your actual property—they want to use the equity you have built up in your property to take out fraudulent loans.
Signing up for the services Home Title Lock provides is one way you can work proactively to protect your assets and your long-term financial stability.
Tip #14: Start Early
We can’t stress this enough—starting early is the best way to build wealth as you age. Remember: you don’t have to do it all at once. You can start small by taking little steps and making small changes to the way you’ve been managing money.
Every action you take will help you put yourself on the right track and ensure you have what you need to live comfortably throughout your life and into your retirement.
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