When asked the key to building personal wealth, financial experts will probably all give different answers. Getting ahead with your personal finances can look a little different than someone else’s path but be just as effective.
We gathered some of the best money advice that can actually help you build wealth. If you are not sure where to start, pick a few of these and then keep adding new habits to reach your goals.
Here are some of the best tips to reach financial freedom.
Build an Emergency Fund
Having an emergency savings fund that has 3 to 6 months of expenses is a great way to build long-term wealth. It prevents you from dipping into other savings or investments for emergencies. An emergency fund can also take care of unexpected costs without affecting your monthly income levels. Start with saving $500 and then keep building your emergency fund from there.
Stay Fit and Healthy
Invest in your fitness and health so that you can avoid unnecessary medical bills. Trips to the ED, medicine for preventable diseases, and needing to see specialists can all become expensive. Plus, poor health affects your overall quality of life and makes it harder to enjoy the little things.
Pay Off Credit Cards on Time
If you use a credit card to pay your bills, make the commitment to never carry a balance. Pay off the full balance every month so that you avoid having to pay interest. One tip is to never put something on a credit card unless you have the cash and know you can pay it off by the time the balance is due.
Pay Yourself First
Saving money so that you can invest it is essential for growing your wealth over time. To save more money, set up a budget and determine how much you want to save each month. Paying yourself first means that you move that amount of money into a savings account from your paycheck. Anything left over can then be used for entertainment and discretionary spending.
Balance Saving and Investing
An emergency fund is essential to handle those unexpected costs. A separate savings account is often helpful for other expenses, such as for a house, car, or college. At the same time, do not neglect to invest some money in stocks, bonds, or real estate. Even if you only contribute a few dollars per month to investments, it is important for growing your overall wealth.
Avoid Lifestyle Creep
As you earn more money, avoid increasing your amount of expenses. Lifestyle creep is often difficult to identify but will prevent you from being able to save more money as you make more. When you get a raise at work or make extra money from a side hustle, put it into savings or an investment instead of spending it.
Pay Off High-Interest Debt First
Debt can be very harmful to being able reach financial freedom. High interest rates make it difficult to pay off debt and tie up your cash flow that could be used for other investments. The highest interest rates that are over 7% or 8%, such as credit card debt and personal loans, is especially damaging. To reach financial freedom faster, pay off your debt quickly and attack the highest interest rates first.
Start Investing Early
Compound interest is a very powerful force that helps to build wealth over time with no effort. The longer that you can let an investment sit, the greater the returns you will see. Even if it is only a small amount, investing early in your life will give you extra time for it to grow. This includes contributing to your retirement accounts as soon as you are able.
Take Advantage of Employer Matches
Some employers offer a match for retirement savings when you contribute a certain amount. For example, if you contribute at least 3% of your income to your retirement account, your employer will also match 3%. This is free money, so make sure you contribute the minimum amount to be eligible for any employer match.
Max Out a Roth IRA
Saving your money in a Roth IRA or other form of retirement account provides tax benefits. Maxing out your Roth IRA with after-tax dollars lets your money grow tax free until you retire. Not having to pay taxes when you withdraw your money in retirement is a good way to save money.
Make a Budget
A budget is essential for tracking your expenses and income on a monthly basis. Budgets help to ensure you are saving money regularly and to avoid lifestyle inflation. If you aren’t tracking your expenses, it become very difficult to know where your money is going and how to save more.
Have a Long-Term Mindset
Building wealth doesn’t happen over night. Look for solid investments that you can hold for many years instead of trying to day trade. Make a financial plan and stick to it, even in the tough down-markets. Work to build side hustles that generate consistent income instead of quick cash.
Diversify Your Investments
Don’t put all your eggs in basket. When you invest, look for a range of opportunities that you truly believe in that will diversify your holdings. This can include stocks, bonds, ETFs, real estate, REITs, and precious metals. By diversifying, you can minimize your risk and increase your chance of generating consistent returns.
Create Multiple Income Streams
Increasing your net worth can be done by increasing your income or saving more, or both. Work to create multiple sources of income through side hustles and passive income. This generates a higher level of money that can be saved and invested. Use your spare time to create wealth-building assets, businesses, or side gig opportunities to earn more.
Live Below Your Means
Especially when you are young, do whatever you can to live below your means to save money. Just because you can afford a nicer car or house, avoid the temptation. Instead, keep your expenses affordable and save the difference. This can be easier when you are young and willing to eat Ramen every night, but continue to make the effort later in life to save wherever you can.
Automate Your Savings
Saving and investing can be hard if you like to go shopping and spend money. To make it easier, set up automatic transfers in your bank to move money to your savings account on a regular basis. Apps can also help to automatically invest a set amount of money on a regular basis. Set it and forget it… and watch your net worth grow.
Build Your Credit Score
For the times when it makes sense to take out a loan, having an excellent credit score will help to lower your interest rate. This is beneficial for mortgages, personal loans, and applying for more credit cards. Building your credit score starts with paying on time, using a small amount of your credit line, and building trust with lendors.
Buy Low, Sell High
This is an important basic principle of building wealth both personally and in business. Look for assets that you can buy at a low price and then sell for more money. This can be anything from real estate to stocks to items in your garage. By doing this repeatedly, you can generate income and wealth.
What is your favorite personal finance advice that you have ever received? Leave a comment to share.
