One of the questions most people love to ask is, “how do I get rich?” The truth is, there is no one way to build wealth. There are, however, proven strategies that can help you build wealth and attain financial freedom. Here are 5 tips to help you improve your earnings, invest wisely, and manage your money like a pro:
If you want to experience financial freedom, you can’t just say you “want to get rich.” You’ll need to give your dream a solid foundation. A financial plan can serve as a guide on your wealth creation journey. You can create a plan yourself, or hire a certified financial planner, which is advisable once your wealth grows into six figures. Get started on financial planning with GuardianWealth today.
An effective financial plan will be grounded in a specific, achievable, and realistic goal. This goal will determine the amount of money you need to earn and how you should invest in order to build your wealth over time. Let’s say, for instance, that you want to own a house in 5 years. You should figure out the price of your dream house, and then work backwards to figure out how much of your income to put away over what time period so that you can afford it. Having a realistic and specific goal is also one of the best psychological hacks to encourage you to work towards your financial freedom. Check out GuardianWealth’s financial goal calculator.
The basic building block of financial freedom involves reducing your expenses and living well below your means. Plenty of people have high income jobs yet fail to build wealth as they spend excessively, leaving very little money for savings and investments. Research shows that middle income earners have high expense-to-income ratios, so they live from paycheck to paycheck. As long as you keep your expenses at the bare minimum, you can put your money to good use by building investments and savings accounts. Some of the actions you can take to reduce your spending include:
Learn more about creating an effective budget in GuardianWealth’s video.
If you want an easy way to budget for your expenses and manage your income, the 50-30-20 rule is a great place to start. This rule states that, of your post-tax income, 50% should be dedicated to your basic needs, 30% on wants, and 20% should go to your savings and paying off debt. Coined by Elizabeth Warren and Amelia Warren in their book All Your Worth: The Ultimate Lifetime Money Plan, this rule can help anyone organize their budget without worrying too much about the details. Here’s a simple process for applying the 50-30-20 rule to your budget:
The 50-30-20 budgeting plan will help you take control of your finances. Try out GuardianWealth’s budgeting tools today.
Once you understand the power of compounding, you will realize how easy it is to make your money work for you. The compounding principle helps you grow your money exponentially over time by earning you returns on interest. Or the money you gain beyond your initial investment. This also means that the sooner you start your investment journey, the faster and easier it will be for you to build wealth. So it’s advisable to start putting away at least a small amount every month, as this will be the start of your journey to financial freedom.
The sooner you start investing, the more you can gain in terms of compound interest. Let’s take an example of three investors looking to improve their finances:
Person A invests $1,000 every year into the stock market between ages 18 and 38. During this time, they have put $20,000 into their investment account. Let’s assume this investment grew by a compound interest of 5% annually. Even if they stopped investing at age 38, through the power of compound interest they’d have $68,046 at age 65. thanks to the power of compound interest.
Person B invests $1,000 every month between ages 38 and 65. This means they put in $37,000 into their investment account. At the same rate of compounding, this individual will have $49,047 available to them at age 65.
Person C invests $1,000 every year into their account between ages 18 and 65. During this period, they invest a total of $47,000. By age 65, this person’s investment will be worth $86,026 thanks to the power of compounding.
These scenarios show that the longer you invest, the more wealth you’ll build, so the sooner you start investing, the better. Start investing today with GuardianWealth.
If you’re serious about committing to your savings plan, then it’s best to automate regular deposits. This makes saving a priority since the money is taken directly from your paycheck and put into a cash or retirement savings account. In some cases (such as with a 401k), your employer can actually match your contribution, helping you grow your savings even faster. You can set up automatic recurring deposits into your savings account even if your employer does not support available savings plans. There are plenty of savings and budgeting tools that can help track your spending and round up each expense by sending spare change from your daily purchases into savings accounts. An automated savings solution is a sure way to help boost your journey to financial freedom. Start saving today with GuardianWealth.
Building wealth is a long process that requires discipline and commitment, but doesn’t have to be difficult. By following the tips we’ve explored in this article, you can fast-track your financial growth, and build investments that will put your money to work for you. Start by creating a plan grounded in specific financial goals, and live within your means to facilitate regular savings and investments. This simple formula will kick start your journey to financial freedom, allowing you to live life on your own terms.