How to Build Wealth
It is a fact that many Americans are poor savers. And some have easy savings opportunities before them, such a retirement fund, but are not taking advantage of these options. Wealth accumulation takes time and it does not happen without much effort and oversight on your part. Your savings plan should be consistent and include the following strategies.
1. Set it aside. You may have heard the saying, “pay yourself first,” when it comes to saving money. Actually, you are paying yourself second as taxes are withheld automatically. Also, if you give to your church, you’ll want to ensure that those monies are set aside too. From there, you can must determine how much money you can afford to take from your paycheck and put that money toward savings. It can be a dollar amount, such as $50 or a percentage such as 10 percent. Have these funds automatically transferred from your pay to a savings account via direct deposit.
2. Savings v. Investments. Savings are funds that are liquid or nearly so and represent monies that you are not willing to risk. These funds are what you deposit into a savings account or a money market account. Investments are monies you put out there that can possibly result in a loss for you. They can also provide much higher returns, easily outstripping bank interest rates and staying ahead of the rate of inflation. Stocks, bonds, precious metals and real estate count as investments.
3. Your portfolio. Your investment strategy should include a portfolio that features different assets that are mixed and matched, or what you need to achieve your investment goals. These assets should be varied and may include real estate holdings, tangible personal property such as art, stock, bonds and cash on hand.
4. Risk assessment. Every investor should know his threshold for taking on risk and stay within those boundaries. Certainly, the more riskier the investment, the greater the chance that you will make more money. That also increases the likelihood that your investment might sour, if not disappear. You may find that your portfolio can include low-, medium- and high-risk investments, permitting you to balance your portfolio accordingly. For instance, 50 percent of your funds might be low-risk, 35 percent medium-risk and 15 percent high-risk. Know what you can tolerate and rebalance your portfolio accordingly.
5. Debt elimination. No investment strategy can possibly succeed if you are in debt. Pay off what you owe first and then invest. Of course, if your company offers a 401(k) plan and matches or contributes to your investment, maintaining this account is important. Simply make a concerted effort to reduce your overhead in other areas; once your debt has been eliminated, then step up your investing to make up for lost time.
Work with a financial advisor to outline your wealth building goals. She can help you build a portfolio that reflects your risk assessment and one that works toward meeting your short-, medium- and long-term goals. Read your investment statements and make changes throughout the year to reflect your investment goals. Lastly, create a budget that can help you see how your money is spent. Make changes to your lifestyle to reduce expenditures and raise your income.