Research conducted by Credit Loan reveals that most (75%) Americans have difficulty maintaining financial control and living off of their salaries. Many people don’t have the financial means to support how they usually live, and there are a few reasons for this. The answer to this issue can be obtained by combining financial knowledge and possessions that can generate wealth. People who make prudent decisions and put their money into appropriate investments have the possibility to earn more than their primary sources of income and become financially successful.
Wealth assets are significant in attaining economic independence since they allow for securing income from multiple sources with high returns. Consult our instructions on creating wealth to discover the proper choices for you.
Key Takeaways:
- Develop a budget and stick to it. This involves tracking your income and expenses, prioritizing your spending, and finding ways to save money.
- Invest in yourself through education and skill-building. This can help increase your earning potential and lead to career advancement.
- Start saving and investing early. The power of compounding can significantly increase your wealth over time.
- Diversify your investments to reduce risk. This can involve investing in different asset classes, such as stocks, bonds, and real estate.
- Stay disciplined and patient. Building wealth takes time and requires staying committed to your goals.
What Is Wealth-Building?
Constructing wealth is the method of establishing lasting revenue through various sources. This is regarding something other than just wages and includes kept money, stocks, and any resources that make money. Creating wealth involves the process of creating a financial plan and having an understanding of what one hopes to achieve financially in the future. Lots of people will use wealth accumulation as a way to ensure a solid financial destiny.
The 3 Steps To Wealth-Building
There are three straightforward steps to amass money gradually: earn money, set aside money, and put money into investments. Before committing funds, it is imperative to have a dependable source of income that can secure your financial longevity. Once a steady income source is secured, developing a tangible savings strategy is suggested. Finally, it is time to invest.
1. Making Money
It is essential to make clear that having a reliable flow of income over time is an essential part of accumulating wealth. Making relatively small contributions from your salary can quickly add to a sizable sum. You should consider if your current job can give you a consistent amount of money to save for four to five decades. It might be beneficial to investigate ways to boost your earnings if not.
The two primary sources of income are active or acquired and passive or unearned. Money earned from a traditional job is known as earned income, while passive income is derived from investments. You might have to shift to a different job to boost your wages. Think about switching to a different profession. Ask yourself a few questions to determine which career path is best for you. What activities bring you pleasure, and which abilities come naturally to you? Identifying a job that corresponds with your strengths and activities that you enjoy will result in improved performance and increase your financial recompense. Naturally, you should be sure that your selected profession brings in a decent amount of money. Investing in your education and taking other courses to make yourself a more appealing candidate for your desired job is a great idea.
Once you have achieved financial security, you can start setting aside money and making investments.
Consider a side hustle to increase the amount of income you bring in. We have several ourselves.
2. Saving Money
Many financially secure folks still don’t practice excellent money-saving skills, even though they can live comfortably. You must save a percentage of your earned money consistently to achieve wealth. You can invest and generate passive income once you have saved an adequate amount. Here are a few ways to start saving money:
- Keep track of your monthly spending, and then crowd out the items, services, and experiences you don’t need.
- Adjust your budget as your experiment to the point in which you’re saving every month, but also aren’t depriving yourself to the point that life isn’t enjoyable.
- Always have about six months’ worth of expenses saved in case of emergencies. A cushion will help prevent you from derailing your finances whenever something unexpected happens.
- Contribute to your retirement plan. If your employer offers a matching plan, definitely take advantage of it. Don’t leave free money on the table.
- Set up automatic transfers by your paydays, setting aside an amount you usually plan to save. This will help you build the amount you can invest without thinking about it.
For this purpose, we use a high cash-value life insurance policy that earns a guaranteed 4% per year. We can easily move money in and out of it, and it’s contractually guaranteed.
3. Investing Money
Finally, when you have established a secure base, you can begin investing your money. To assemble a varied investment portfolio, it will be necessary to embark on specific risks. Examining what amount of investment diversification is suitable for you is essential. Although you can perform the investigation on your own, it is suggested that novice investors opt to use a financial specialist. They can aid you in becoming aware of your investment objectives, the length of time for investing, and how much danger you can handle. From these new revelations, they can assist you in forming an asset allocation that is safe, temperate, or dynamic under your choices.
Take into consideration that there are multiple automated financial advisors and investment apps that are approachable for those with little experience.
For us, we invest in buy-and-hold real estate, specifically single-family homes. They generate cash flow fairly consistently and make money in four ways: Cash flow, appreciation, taxes, and loan paydown.
Paying Off Debt Vs. Investment
The primary factor for determining whether to pay off debt or invest is the interest rate applicable. Is the debt growing faster than your investment would? If the answer is affirmative, would it be advantageous to pay off the debt before investing? This holds usually when it comes to debt accrued on credit cards, with interest rates usually much higher than usual for any unpaid balance. Once you have addressed the high cost of borrowing, turn your attention to how you can generate wealth through investments.
Assets To Avoid For Wealth Building
Many different investment options exist that have the potential to generate wealth. No one can provide an exact formula for putting together your portfolio. However, some broad principles can advise you in knowing what to steer clear of.
Depreciation
Assets that are not good for creating wealth are items that go down in value with time, referred to as depreciation. An example of expanding one’s wealth could be purchasing cars or boats, which can be seen as an enjoyable or engaging experience. Nevertheless, considering repair and operational expenses, it is probable that you will not earn a profit from the sale of these items. Excluding vintage or rare automobiles, it is not suggested that these models are an excellent way to increase one’s riches.
Liquidity
It is essential to consider liquidity when picking out investments for your portfolio. This refers to how swiftly an investment can be liquidated. When it comes to items viewed as collectible, like wine and stamps, knowing who to target as a buyer can be difficult when putting them up for sale. This might lead to bids that are less than anticipated or a more extended period to invest what was desired. In other words, confident investors will invest deeply in these industries, which can result in considerable money gained from these investments. Consider depreciation and cash flow when constructing your ideal portfolio for accumulating wealth so you do not miss out on any possible revenue.
1. Have a goal.
The aim may be to vend your first product at a local farmer’s market, create a book, upgrade an Airbnb, become debt-free, garner four design clients, or virtually whatever else. The primary objective is to make your goals and identity obvious.
2. Document your progress.
This upcoming task is slightly harder to accomplish – not owing to its complexity in tracking progress, but because of its difficulty in remaining consistent.
Decide on a regular schedule and compose posts to remind others of your objectives and report the advances, lessons, and difficulties you have faced while striving to reach them. Potential alternatives include writing a monthly blog or regularly posting to Instagram.
3. Ask for help.
In conclusion, recognize that everyone is eager to offer assistance, so accept it! If you have questions about assigning value to your goods or organizing your enterprise, inquire. If someone in your small group is not knowledgeable about a particular subject, one of them will probably have connections to someone who can provide more information.
I have been astonished by the number of people who came forward to help with guidance, connection, and backing when I requested it at various times during my voyage.
As you start to map out your next move to increase your financial status, it is recommended that you come up with a precise purpose, make it known to others, and offer others the facility to support you and make it come true.
The Unique Shapes of Increasing Income
You will encounter tougher challenges as you climb higher on the income ladders, but the potential gains are even larger. It may be hard to understand precisely why that is, so let’s explain it with three visuals:
- Stair step
- Linear
- Exponential
Stair Step
The majority of individuals will go through a gradual increase in their earnings throughout their lifetime. When they transition from an hourly rate of pay to a salaried position with a salary increase, it will result in more money. Then each additional salary increase will be another step.
In many professions, advancements can be either minor or infrequent or significant and spaced out over a more extended period, such as transitioning from a resident to a full-fledged doctor or becoming a partner at a law firm.
You may be able to increase your salary by working on a separate venture, such as investing in a rental property, buying an e-commerce business, or signing a continuing consulting agreement, which could provide more earnings.
Nearly all wealthy people acquired their wealth using this approach, which may not be ideal. You can expect to experience growth and success in the long term. However, it is not entirely without risk. For 40+ years, this is one of the best ways to become wealthy.
Linear
If you look at the overall picture, a series of stair steps that are very close together will appear to be a continuous line of increase.
A freelancer’s salary can be expected to gradually go up at a steady rate rather than increase in jumps, as an employee will likely experience a raise every few years. Getting one rental property in one year is beneficial, as is buying another one each year in succession.
In most cases, I notice that peddling digital items is correlated with linear growth: the more visitors there are, the more sales are made.
The rate of users visiting the website is not exploding since there are restrictions caused by the traffic. However, each additional blog post or higher search engine ranking results in several hundred more individuals visiting the page each month. Over time that drives more sales and income increases.
Exponential
Rapid expansion stems from when each purchase of an item drastically aids in the success of the next sale. You need a commodity that can be mass-produced and then resold, whether physical or digital. Meaning you can’t be selling your time.
A gradual increase in revenue may take a long time, sometimes up to a few years, before it can be considered significant. But the development will be astonishing in just a few years or within the next ten years.
Software organizations, online stores, and massive e-commerce businesses have the potential for tremendous growth and can expand quickly when the conditions are right. It usually requires effort, proficient ability, and considerable capital.
Considering Levelling Up Your Income and Wealth?
As you’re considering making the jump to the next level, ask yourself these questions:
- What rung am I on in my journey to build wealth?
- How far is it from the rung and ladder I am on currently?
- What new skills would I need to close the gap between where I am now and where I want to go?
- How long will it take to acquire those skills and get initial traction?
- Do I have the runway (both in time and financial security) to make that jump without putting my finances in danger?
This should not prevent you from taking action. The responses to these questions will provide you with knowledge that increases your likelihood of success in the future.
Frequently Asked Questions (FAQs):
Q: What is wealth building?
A: Wealth building creates lasting income from various sources, not just your salary. It involves saving money, investing in income-generating assets, and having a clear financial plan for the future.
Q: What are the three steps to wealth building?
A: The three steps to wealth building are making, saving, and investing. It’s essential to have a reliable source of income, save a portion of your earnings consistently, and invest your savings in assets that can generate more wealth.
Q: What are some assets to avoid for wealth building?
A: Assets that depreciate over time, such as cars or boats, are not suitable for wealth building. Also, investments that lack liquidity, like certain collectibles, can be difficult to sell and may not provide the expected returns.
Kurt has gone from the financial lows of the ’08 financial crisis to personal financial success. He is a professional real estate investor, media buyer, faithful Red Sox Fan.
One of his passions is financial education and the pursuit of financial freedom.
You can learn more about Kurt here, or get a hold of him on Facebook or Twitter.
Further reading:
How to Calculate Your Financial Freedom Number: A Step-by-Step Guide 
How to Manifest Financial Freedom – Proven Strategies for Wealth & Money 
What Happens If You Retire Without Savings – Navigating the Reality of a No-Cushion Retirement 
What Percent of Americans Have $1000 in Savings? Key Findings Revealed