Overnight millionaires are the exception rather than the rule. According to a 2016 survey by U.S. trust, 88% of respondents with at least $3 million in investable assets attributed “hard work” as the number one reason for their success. Long term goals and investment strategies are essential to every sound wealth building plan.
For the average worker there are three major components to a wealth building strategy; earning, saving, and investing. Whether through formal education, trade skills, or entrepreneurial ventures, earning an income is the first step. Saving however, is the hardest for most people to achieve. In a consumption based economy such as the U.S., consumers are bombarded everyday with advertisements and marketing campaigns to influence their spending habits. Lastly, investing is the difference in how much wealth a person may accumulate. Making the right investment decisions and balancing risk is an important part to achieving valuable returns.
By developing a plan and sticking to it, it’s more than possible to achieve financial wealth. Understanding investment options and using available tools throughout the process can provide additional leverage. A little hard work and patience may be required, but the sooner you start the sooner you will reach your goals.
1.) Cash Flow
How much you spend is as important as how much you earn.
You will never be able to generate wealth without saving a portion of your earnings. Poor financial planning and bad spending habits are part of the reason 78% of NFL players go broke within two years after they retire.
- Eliminate unnecessary expenses
- Enroll in automatic investing. Acorns is a great way to get started
- Asses where your money is spent every month
- Seek employers that offers good benefits such as health insurance, tuition reimbursement, and retirement match
Keep a close eye on your money.
Mint is a free app that connects all of you’re a financial accounts into one dashboard. By compiling this data together, you get a better picture of your financial position and net worth.
- Connect accounts such as banking, mortgage, auto, credit cards, and student loans to get a complete picture
- Set budgets so you get alerted when your spending goes off track
- Set goals to help you reach financial milestones
- Browse offers to see where you might be able to save or earn interest on your accounts
3.) Credit Cards
Don’t buy what you can’t afford.
Easier said than done, but if you don’t it’s going to cost you. A 2016 study by NerdWallet.com found the average U.S. household pays a total of $1,292 in credit card interest per year. That number continues to increase as the cost of living climbs faster than growth in income.
- Pay off credit card balances in full every month
- If you do have CC debt, pay off the highest interest first or if rates are equal, start with the lowest balance
- If you’ve been a loyal customer, contact your credit card provider and ask about lowering your interest rate
- Consider your options for consolidating debt, but avoid new liabilities if you aren’t committed to paying it off
Never leave money on the table.
A 401k is a retirement account that includes a match by your employer for the amount you invest – up to a certain percentage. A typical match is 50% on up to 6% of your income. So if 6% of your paycheck is $100, your employer will match that with $50 in FREE MONEY!
- Always invest the maximum needed to get a full match
- If you’re not familiar with investing, defer to a target date fund based on your expected retirement age
- Avoid borrowing or closing accounts because you may incur penalties and miss out on returns
- Don’t stop investing at you employer’s match. Seek to invest 10% and increase that by 1% each year
Don’t let your money sit idle.
It’s important to have cash on hand in a crunch, but keeping too much in savings or under a mattress is going to lose value in the long term. In order to capture decent returns, you need to take risks. The stock market, real estate, or even Bitcoin are options you can research to find ways to increase returns.
- Don’t leave yourself shorthanded, keep enough cash liquid for 3-6 months of living expenses
- Keep fees and expenses to a minimum on investments
- Diversify. Too much exposure to a single investment will leave you vulnerable if that asset tanks
- ETF’s are a great way to gain exposure to entire sectors of the stock market. Some brokers such as Vanguard let you trade their managed ETF’s for free
Good habits can be contagious.
The benefits from daily exercise are no secret, but trends in higher income may not be the most obvious. Studies have found correlations between regular physical activity and higher earnings. With improvements in cognitive function, concentration, and stress management you’re sure to benefit in some way by taking the time to work out.
- Do it for free and save the expense of a gym membership
- Start light and don’t burn yourself out
- Stay consistent and it will translate into better output at work
- If you really enjoy fitness, look for a way to earn extra income by certifying as a trainer or yoga instructor
7.) Get a Raise
Never undervalue yourself.
There are several ways to go about this, but the most direct way is to just ask. A 2015 study by Payscale found that 50% of workers earning up to $70,000 received a raise when they asked for it. That percentage even increased at higher pay scales. The study also found white collar jobs to have the best potential in getting requests for a raise granted.
- Know the value of your skillset
- Stay positive and don’t give your employer an ultimatum
- Present your case and provide examples of how you have added value to the company
- Be patient. If the request is ultimately denied, it’s ok to seek new opportunities but avoid bidding wars that may hurt your reputation
While it would be nice if there were shortcuts we could take to achieve wealth, the fact of the matter is – if that were the case everyone would be doing it. Diligence is key to a long term investment strategy. Nobody has been a bigger advocate to that than Warren Buffet himself.
Establish goals and continuously evaluate your performance to make sure you’re on track. Get your debt paid off and stick to an investing regiment. Seek to improve your personal value, but take things one step at a time.
Whatever your financial situation may be, there is no better time to start than now. We have all faced hardships before, but there is a point where you need to make the tough decisions and push forward. Good luck and never give up!