One of the most common questions people ask today is how to build wealth. This is completely understandable because more and more people are becoming more aware of the need for financial security. While this article won’t give you the tricks to get rich quickly, it will give you some insight into how to build wealth from a young age.
- Revenue streams
While this may be obvious, you need to earn an income. Without an income, you can’t invest in ways to grow your wealth. When you think of growing wealth, what comes to mind? Most people associate those with wealth, having had it all the time. But, the truth is that many people only started with a small income but used it wisely and cultivated it into something bigger.
So, you can start small, putting the bare minimum away every month into an account that allows to compound and grow. As your income grows, increase your investments. There are two primary ways to earn income. Money earned by hands-on work through your job or business and money that comes from interest on investments or revenue from tangible assets like rental properties. So, the first step to building wealth is securing an income. But how can you do this? Here are some general ideas:
- Earn a formal education that opens the doors to a well-paying job
- Offering a service needed in the market
- Continually invest in your development
- Create a plan and set goals
Think of your path to building wealth as a financial destination. In order to get to where you want to be, you need to plot out the course to get there. We always say that you should start with the end in mind because that allows you to create accurate and achievable goals. So, set short-, medium-, and long-term goals that you need to achieve and develop a plan to achieve them. Here are some tips to help you:
- Make sure your goals are realistic and clear
- Create a strategy that helps you achieve your goals
- Your plan should be flexible so you can adapt it to your circumstances if they change
- Save, save, save
An inability to save is like a nail in the coffin of someone trying to build financial wealth. If your money is leaving your account just as fast as it comes in, you’ll stunt your ability to grow. Ideally, the goal should be to have at least three to six months of your gross salary in a savings account at all times. That excludes your retirement savings and investments. Here are some tips that can help you save more:
- Put your savings away first before paying your expenses
- Track your spending and spend within your budget
- Avoid spending on unnecessary items; instead, save towards buying what you would like
- Set saving goals that dictate how much you would like to have in savings and by when
- Invest wisely
Investing can be a safe or risky way to build wealth; it all depends on the investment strategy you choose to take. Once you’ve belt a bit of savings, allocate some of that capital to an investment that has the potential to yield a good return. You could invest in bonds, stocks, shares, or into something like a unit trust or tax-free savings account that offers you a decent interest rate that’s compounded annually.
There are riskier investments that you could choose from, too. For example, cryptocurrency can yield a good return on investment, but it’s volatile by nature, which means it fluctuates radically, posing a high-risk, high-reward structure.
A common investment strategy that wise investors use is to diversify their investments. To do this, they would allocate some funds to a unit trust, stocks, crypto, or even to a tangible asset like buying a rental property. This spreads their investments out, balancing them so if one investment drops, all your cash doesn’t go down the drain with it. This is usually a safer way to go when investing.
- Protect your assets
This is an important one. You need to protect your assets. Remember that you assets are key to building your wealth. Thus, if they aren’t protected against unexpected events, you could lose them. By assets, this also includes yourself. Here are some ways that you can actively protect your assets:
- Life insurance that covers you or your family for death, illness, or permanent injury
- Homeowners insurance that covers your property
- Vehicle insurance that covers your vehicle if you’re ever in an accident
- Be tax-smart
Those who build wealth know how to reduce the amount of tax they need to pay in order to keep as much of their earnings as legally possible. In Australia, citizens are offered a variety of ways to reduce their tax liability. For example, paying monthly into a super fund could reduce your tax slightly. Likewise, holding assets for a longer period of time can reduce the capital gains tax owed on them, too.
Build wealth with help
We have a saying, “You don’t know what you don’t know”. For many, financial literacy is one area that may be lacking. As a result, people might not have the knowledge or experience to put the tips above into practice. Should you think you fall into that category, then it’s time to take the first step to becoming more financially literate and hire a financial planner. For help with financial management and planning to build wealth, Solace Financial planners. As one of the best brokerages in Australia, we recommend booking a consultation with them to help you on your journey to cultivate wealth.
Final thoughts
There’s no one-size-fits-all strategy for making a lot of money. However, some principles like discipline, hard work, and a good understanding of financial literacy can help you adapt different methods and strategies you learn from others to help you build wealth. Consider the points above and practice techniques to implement them in your life. This will get you one step closer to success.
