5 Step Guide on Building Wealth
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Picture this: You have a steady job and the income you receive at the end of the month goes in paying bills, funding needs, and splurging the little that is left. Amidst the daily routines of life, have you ever stopped to think where exactly your wealth is going? It is easy to say that you save a fixed amount every month, but it is also important to know why and exactly how you are utilizing it. Legendary investor, Warren Buffett has always been a staunch believer of one of his quotes, a rule which he lives by and is a key to his successful standing today. “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1” So how do you not lose money and build wealth?
5 Steps Guide to Build Wealth
1. Ensure you have positive cash flow
Ensuring a regular flow of income is the first step of building wealth. Check if your career has taken the right turns and if it is giving you your value’s best. You don’t have to be a millionaire to be financially sound. All you have to assess is, whether you are living a comfortable and secure life or not. Develop a strategy to understand how much you need to direct towards spending and saving. A savings goal calculator might just give you a clearer picture of where you stand. If you feel that your current job is not enough for your expenses and savings, you should think about generating other revenues of income, putting some extra hours, or getting a side hustle.
2. Save more, spend less
The concept of frugal living is a rule touted by many businessmen, successful personalities, and financial advisors. Frugal living is not living with restrictions or compromising the quality of your life, but a mere attempt to grow your savings. It is easier said than done, but once you put it into practice, a frugal lifestyle can be leveraged to increase wealth. Formulating a budget is the most practical way to do this. Analyze your needs and wants and cut your spending on the latter. Initially, this may seem difficult to incorporate in your routine but take little steps and you will get there soon enough. For instance, you can cook at home instead of eating out, take the subway or bus instead of your car, or exercise at home instead of availing a gym subscription. These habits don’t reduce your quality of living, but simply steer your wealth into the right direction and culminate it into regular savings.
3. Clear off your adverse debt
Everyone has debt that they are struggling to clear. But there is a fine line between essential debts and adverse debts. Debts like student loans or a mortgage loan are inescapable and somewhat necessary. They have low interest rates and can be paid off slowly. However, credit card debt or a car loan is not very feasible and have considerably high-interest rates. The cost of these debts is most likely to double if you don’t clear it off in a few years. It is, therefore, advisable to clear such adverse debt that adds to your financial burden, instead of putting it off. Ideally, try and make a financial plan that helps you steer clear of these debts in the first place. Unnecessary debts can take an irreversible toll on your financial well-being. You can take the help of a savings tool calculator to assess how much you should be saving and build a plan around it.
4. Channelize wealth into profitable investments
Once you have developed the habit of regulating your income, spending less and saving more, you can move on to a step that is considered to be a survival tactic in today’s world. Everyone invests, but unfortunately, most people don’t know where to invest. Chances are that you have invested your assets into something that has stemmed from an impulse, unsearched advice, or hearsay. It is important to know where your money is being invested. There are so many sectors to choose from, for example, business, equity, real estate, dividend growth companies, stocks, etc. Every investment comes with a certain amount of risk. You can’t escape it, but you can find a way to balance risk and returns. Focus more on quality than on the number of investments. Another thing to note is to not over diversify your portfolio. It leads to more unprecedented risks and less profitable returns. You can consult a financial advisor to determine an appropriate asset allocation strategy for your investments.
5. Move forward with the bigger picture in mind
Once you are on the wealth-building wagon, it is important that you don’t fall back into the comfort of staying in the same place. It is crucial that you move forward with your wealth and find better ways to enhance it. For instance, once you invest, don’t passively wait for returns. Read up on upcoming investment options, the fluctuating markets, and so on. Increase your knowledge with the goal that you are building your wealth for. Know your reason and purpose to do so. It may be funding your child’s education, insuring your health or saving up for a comfortable retired life. That said, it is also important to protect your accumulating wealth. Having a reasonable budget for spending, sound investments, and an emergency fund are essentials you should strive to increase. Most people build their wealth not just for themselves but also for their family and further generations. Others reach out and give back to society. But all this can be achieved once you are in a process of building wealth.
To sum it up
It is not easy to always have 100% results with a financial plan. There will be unprecedented risks, events, and even losses that will come your way. That is life! But it is always better to be prepared to tackle such instances by building wealth.
Do you need help in understanding the nuances of asset allocation, maintaining your portfolio, and building a dependable reserve of wealth? Get in touch with financial advisor today!