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7 Foolproof Steps For Building Wealth

Pay Off High-Interest Debt

Pay down your high-interest debt as quickly as possible. 

While some types of low-interest or tax-deductible debt can help you along the way, high-interest debt rarely has a good purpose.

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7 Foolproof Steps For Building Wealth

7 Foolproof Steps For Building Wealth

https://www.forbes.com/sites/ryanguina/2019/08/06/7-foolproof-steps-for-building-wealth/

forbes.com

7

Key Ideas

Create a Spending Plan

The wealthy see money as a resource and a tool to help them build wealth over time.

Know your income, your expenses, how much is earmarked for additional expenses and how much for other financial goals.

Spend Wisely

Learn how to spend on the things that matter to you. 

Consider your values and priorities when you draw up your spending plan. If going on vacation or giving to a charity is important to you, include those items in your spending plan.

Pay Off High-Interest Debt

Pay down your high-interest debt as quickly as possible. 

While some types of low-interest or tax-deductible debt can help you along the way, high-interest debt rarely has a good purpose.

Create an Emergency Fund

Create an emergency fund to avoid the need to turn to debt.

Think about what makes sense for your financial situation.

Earn More Money

Building wealth is about cutting costs as well as looking for ways to earn more money.

  • If you work for a company, make yourself valuable so you’re eligible for raises and promotions.
  • Alternatively, look for a new job that pays more and recognizes your worth.
  • Start a business or side hustle to make more money.

Invest

Compounding returns that come with investing are necessary to build substantial wealth over time.

Protect Your Assets with Insurance

The right insurance coverage can reduce your financial risk that might go toward replacing losses. For instance, homeowners insurance, health insurance, disability insurance, car insurance.

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Increase Your Income

Formal education, practical experience in your field and doing a good job is important to earn a high income.

Most professionals see their incomes increase over time. If you can gain high ear...

Save and Invest

You’ll only build wealth if you save a reasonable percentage of those earnings.

  • If your employer offers a 401(k) plan, increase your contribution.
  • Automatically send a portion of your money to your savings or investment accounts before you can spend it.
  • Purchase a home instead of renting. You'll get your house payments back in the form of equity.
  • Pay off anything you owe to avoid paying interest.
  • Maximize the interest earned on your savings.
Cut Wasteful Spending

Periodically evaluate your spending and look for sources of savings.

  • Invest in more sustainable technology for your home. For instance, if you watch cable, buy only the channels you are watching.
  • Improve the insulation of your home to reduce the amount you are spending on electricity and gas.
  • Consider buying in bulk.
To accumulate wealth...
  • You need to make it. You need a long-term source of income that's enough to cover your basics.
  • You need to save it. You need t...
Making Enough Earned Money

Earned income comes from what you "do for a living."

  • Consider what you enjoy as you will be more likely to succeed financially.
  • Consider what you're good at and see how you can use those talents to earn a living.
  • Consider what will meet your financial expectations.
  • Consider how to get there. Determine the education requirements, etc.

Evaluate your income situation annually.

Saving Enough of It

To ensure that you save enough money, your wants should not exceed your budget.

  • Track your spending for at least a month.
  • Trim the fat. Break down your wants and needs.
  • Adjust according to your changing needs.
  • Build your cushion. Aim to save around three to six months' worth of living expenses.
  • Contribute to a retirement fund and try to get the maximum your employer is matching.

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How you can invest in yourself
How you can invest in yourself

The foundation for every personal pursuit in life is to invest in yourself. It can take years. How you can do it:

  • Learn to build something. If you can create something valuable w...
Income generation

Once you have ideas, you want to put your ideas to work. If you do that, you can start creating value. When we create value, we generate income.

During the pandemic for example, most restaurant owners had to focus on other ideas to generate income. Building wealth is not easy. We need a constant supply of ideas.

Asset investing

It is anything that will increase your wealth without personal labor.

  • Businesses. This is a broad asset class. You can buy dividend-stocks on the market, and then the companies will pay you a share of the profit. You can start your own business. You can buy into other private businesses.
  • Bonds. When you invest in bonds, you collect interest just like your bank is collecting on a mortgage.
  • Books. A good book will generate cash for a long time.

Assets that don't generate cash, but might increase in value.

  • Land. A piece of land generates cash when you rent or lease it.
  • Collectibles such as art or watches.

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Making Your Budget Too Strict

Budget for the life you have. When you’re going through your budget and assigning spending categories, be realistic. 

Don’t tell yourself you’ll never buy a single discretionary i...

Budgeting for a Life You Can’t Afford

This becomes a problem when you’re spending for a life you can’t afford. It puts pressure on your budget and encourages you to live in a paycheck to paycheck cycle.

Assess your financial situation, cut back on your expenses, prioritize your money goals, and then come up with a new spending plan.

Budgeting Without a Purpose

It’s hard to stick to a budget that doesn’t have a goal.

When there isn’t one, your budget becomes an afterthought rather than a spending plan to reach your financial goals.

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Side Hustle to Make More Money

You don't have to sacrifice all of your free time to start a side hustle, use the time you’re comfortable with and make a little bit of progress every day. 

Take Action

Get to working on improving your finances today, not tomorrow. Reading the steps and thinking you’re capable of doing it but postponing it is just an excuse, an unprofitable one.

Communicate With Your Partner

Talking about your financial goals, and scheduling time once a month to go over your finances together can prevent money from affecting your relationship.

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Salary is not the same as savings
Having a high salary does not automatically make you rich; having a low salary does not automatically make you poor.

Your net worth is more important than how much money you make. It’s amazin...

Saving is more important than investing

Pay yourself first is such simple advice, but so few people do this. 

The best investment decision you can make is setting a high savings rate because it gives you a huge margin of safety in life.

Live below your means...
....not within your means. 

The only way to get ahead financially is to stay behind your own earnings power.

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The Golden Rules of Personal Finance
  • Spend less money than you earn
  • Always plan for the future: you should always look forward beyond the current month
  • Make your mon...
3 Financial Basics
  1. Create a Financial Calendar: prevent yourself from forgetting quarterly tax payments and to get credit reports.
  2. Check Your Interest Rate: Pay off loans, open saving accou...
Budgeting Like a Pro
  • Consider an All-Cash Diet, as limiting yourself to physical currency combats overspending.
  • Set aside 1 minute a day to check on your financial transactions, to identify problems, track goal progress and set your spending tone.
  • Allocate at least 20% of your income to financial priorities like emergency funds, debts and retirement fund.
  • Budget about 30% of your income for nonbasic spendings, like entertainment. Abiding by the 30% rule, you can save and splurge at the same time.
How to Get Money Motivated
  • Draft a Financial Vision Board, it motivates and helps you to stay on track with your financial goals.
  • Set specific financial goals stating the reason, the way, numbers and dates.
  • Adopt a spending mantra, a phrase that serves as a rule of thumb for how you spend.
  • Love yourself. Taking control of your finances is part of that.
  • Make bite-size money goals. Make the bigger ones but also small step goals to get there.
  • Don’t be a financial fatalist, and switch to more positive mantras.
  • Get your finances and body in shape. The discipline associated with regular exercising translates to managing your money well.
  • Appreciate what you have now, instead of being a consumerist.
  • Get a Money Buddy. Studies indicate people pick up good habits from friends with similar traits.

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Financial planning

 ...is the process which provides you a framework for achieving your life goals in a systematic and planned way by avoiding shocks and surprises.

Try making a budget
  • Create a full inventory of expenses in front of you: Categorize them into fixed and variable; urgent and non-urgent; necessities and luxury; avoidable and unavoidable.
  • You can create a hierarchy of needs and decide which one’s to address first. It’s all about prioritizing. 
  • Accept that you have limited resources and unlimited wants. But you have to manage your resources. The sooner you accept this fact, the better you can control your impulses towards avoidable expenditures.
Maintain a personal balance sheet

It’s a statement wherein you can jot down your assets and liabilities.

  • Pull together your bank statements and other proofs of the liabilities
  • List down your assets like the bank balance, all investments, home value, and value of other assets.
  • Take a sum of all the assets to arrive at the total value of your assets.
  • List down your liabilities the (car loan, home loan, credit card balances etc.)
  • The sum of all the liabilities will show the value of the money you owe.
  • When you subtract the value of liabilities from assets, you get your Net Worth.

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Budgeting = creating a plan to spend your money

Budgeting is simply balancing your expenses with your income.

It's a plan for the coordination of resources and expenditures. When you budget your money, there’s a desir...

How to create a budget
  1. Gather Some Financial Information: gather a detailed list of your income and expenses.
  2. Select a Budgeting Method: figure out how you’ll budget your money to meet your most pressing financial goals.
  3. Create Your Budget: tally up all your expenses and income to see where you stand and allocate expenses.
  4. Execute Your Plan: you can use a notebook, pen and paper, a spreadsheet or an online software.
  5. Reward Yourself: you can work a small percentage into your budget to treat yourself each month.
The 70:20:10 budgeting method

This method suggests that you allocate 70 percent of your income to expenses, 20 percent to savings, and the remaining 10 percent to debt.

70:20:10 may work for someone with a healthy emergency fund and minimal debt.

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