re you unsure of how to build wealth? Investing is one of the best ways to do so. Gold is an asset that holds its value and recently hit an all-time high of more than $3,000.
If you’re wondering where to start, this guide will show you how.
What does it mean to be wealthy?
Being wealthy isn’t just about having a lot of money in the bank or a nice car parked in your driveway. It’s about having financial freedom and security to live the life you want to live.
Wealth means having the resources to cover your needs, pursue your goals, and enjoy your life without constantly worrying about money.
Net worth is one way to measure wealth, but wealth isn’t just about money. It’s about being able to use that money to buy back your time, maintain good health, or adopt a flexible lifestyle.
Being wealthy is one way to achieve your goals and priorities.
7 Steps to Building Wealth (the right way)
Building wealth takes a long time – don’t expect to become wealthy overnight. Here are seven steps you can follow on how to build wealth and align your money with your goals.
1. Create a plan and goal setting
Wealth is the byproduct of deliberate action and discipline. To get you on the right path, you need to know what you want and build a plan to get there.
Your goals will look different than someone else’s. Do you want to retire early? Buy a home? Travel the world? Getting clear on what you want out of life will help you shape your financial strategy.
Once you know what your goals are, set short-, medium-, and long-term goals, and break them down into achievable milestones.
Create a financial plan that aligns with those goals and milestones. You’ll want to include income, expenses, and savings rate in your plan.
Deploying your savings into an investment strategy will help you build wealth to achieve your goals.
2. Earn money
Income is a core part of your plan. You can’t build wealth without first earning money. Whether you have a 9-to-5 job, run a business, or piece together freelance gigs, your ability to earn money is your most valuable asset.
Focus on increasing your income. There are a variety of ways to do that:
- Negotiate a raise at your job
- Learn new skills that make you more valuable
- Switch to a higher paying industry
- Start a side hustle so you can make money in your free time
- Earn dividends from stocks and bonds
- Collect rent from a rental property
The more you earn, the more you can save and invest. The earlier you start increasing your income, the more time your money will have to grow, increasing your long-term wealth.
3. Control your debt
How much money you spend determines how much of your earnings you can save and invest. If you spend more than you earn, you’ll go into debt.
That is the easiest way to derail your ability to build wealth. Track what you owe and use the debt avalanche method to prioritize paying down high-interest balances first.
If you have student loans, a car payment, or a mortgage, look for ways to refinance your debt to lower your interest rate.
Avoid taking on new debt unless it can help you grow your income – like an educational program to learn a new skill.
Controlling your debt frees up more of your income to invest in your future. The more you invest today, the more time it will have to compound and grow.
4. Increase your credit score
Your credit score plays a bigger role in building wealth than you might realize. Having a good credit score affects your ability to get a mortgage, qualify for low-interest loans, and in some cases, land a high paying job.
To build your credit, keep a low balance on your credit cards, pay your bills on time, and avoid frequent hard pulls on your credit.
Check your credit report regularly to look for errors or fraudulent activity.
5. Start investing
Saving money is important but investing is how you’ll build real wealth. Keeping cash in the bank won’t grow enough to keep up with inflation and will lose its purchasing power over time as a result.
Start by investing in retirement accounts like a 401(k) or IRA, especially if your employer offers matching contributions.
Allocate your investments into assets that align with your goals and risk tolerance. You can invest in index funds, stocks, bonds or alternative assets like gold and real estate.
Diversify your portfolio to mitigate against downturns in the market. The earlier you start investing, the more you’ll be able to benefit from compound interest.
6. Build your wealth team
Wealth isn’t something you have to build alone. Surrounding yourself with the right people can help you make smart financial decisions, avoid costly mistakes, and stay on track with your goals.
Consider building a wealth team to include a:
- Financial advisor
- Tax expert
- Certified Public Accountant
- Estate planner
- Mentors who have already built wealth
Your wealth team can help you minimize taxes and create a long-term investment strategy.
7. Protect your assets
As you build wealth, protecting it will become just as important as building it. Unexpected events – like a trip to the ER or a recession – can derail years of progress if you’re not prepared.
Make sure you have a plan in place to mitigate risks. Keep cash on hand in an emergency fund to cover unexpected things when they pop up.
Make sure you have the right health, life, and property insurance policies in place to mitigate catastrophic events.
Allocate your investments in safe assets like gold which hold value over time.
Remember that wealth isn’t just about accumulation, it’s also about preservation. Protecting your wealth will give you peace of mind that it will last into the future.
8. Bonus – Preserve your wealth
Building wealth is only half the battle. Once you build it, you’ll need to develop a plan to keep it.
This is where your wealth team can help. You’ll want to be smart with taxes, avoid risky investments, and plan your legacy.
Use tax-advantaged accounts, rebalance your portfolio as you get older, and consider using a LLC or trust to help shield your wealth.
Wealth preservation assets like gold and income generating assets like real estate or dividend stocks can be part of your strategy once you’ve built wealth and need to maintain it.
Key Takeaways
Wealth isn’t the byproduct of luck. It happens when you develop a plan, align it with your goals, and practice financial discipline over a long period of time.
Wealth is personal and it will vary from person to person. Set clear goals and align your income and spending with those goals.
Once you have a plan in place, keep your debt under control and begin investing as early as possible.
Surround yourself with wealthy people and experts who can give you good advice. Then protect your wealth as you build it.
Building wealth is a marathon not a spring. Even if you don’t think it matters right now, every small choice you make today will snowball into wealth tomorrow.
FAQs
What is the fastest way to create wealth?
The fastest way to create wealth is to maximize income and minimize expenses. Invest the difference as soon as possible and allow compound interest to grow your savings over time.
What is generational wealth?
Generational wealth is the transfer of assets, money, and financial knowledge from one generation to the next.
It’s not just about passing down an inheritance, it’s about creating a financial foundation that is sustainable across generations.
What are the top 2 habits of all wealthy people?
Wealthy people are disciplined in how they manage their money and they live frugally. Warren Buffet is a great example: he still lives in the same modest family home in Omaha and orders from the value menu at McDonald’s.
Do I have to pay more taxes if I make more money?
It depends where you live. You’re taxed based on your income rather than how much wealth you have on your personal balance sheet.
The more money you earn, the more you’ll pay in taxes but if you invest in a tax-advantaged account or live in a state that doesn’t charge income taxes, you can save some money on your overall tax bill.
