How to build wealth when you don't know where to start | INVESTED MOM
Many people want to know how to build wealth but don't know where to start. If you're in that boat, don't worry--you're not alone. I was there too.
It's no secret that wealth-building takes time, patience, and discipline. However, if you don't know where to start, the task can seem daunting. The biggest barrier to building wealth is often starting out with too little knowledge and too little (or no) money. It's easy to feel like you'll never be able to save up enough to make a difference, but the truth is that even small changes can have a big impact on wealth-building over time. Ask me - I had a mountain of debt and had no idea how to start tackling it, never mind the wealth-building part.
Maybe you've never had much money, or maybe you've made some bad financial decisions in the past, I know I sure have. Whatever the case may be, it's important to remember that anyone can start building wealth at any time, and the best time to start is today. I wish I'd started earlier, but there's no point in looking backward, we're not going that way. The only time is now!
Whether you're getting out of debt, retirement planning, or pursuing other financial goals, setting up good habits can put you on the path to building investments for the long term while you navigate your short-term finances.
Building wealth by setting realistic goals
Start by setting realistic goals and then break them down into smaller, manageable steps. For example, if your goal is to save $10,000 over the next year, you could start by saving $834 per month. That may seem like a lot, but if you break it down into weekly increments of $192, it becomes much more feasible. And once you've reached your goal, you'll have the confidence and momentum to keep going. So don't let a lack of money hold you back from building the future you want. Start small, even if it’s just $20 per month, and take it one step at a time.
Building wealth by increasing your income
With fixed living expenses such as rent and utility bills, there comes a limit to cutting your living expenses, and looking at ways to increase your income becomes essential. Keeping your costs the same, a higher income can give you greater freedom to build wealth.
There are many ways to increase your income including changing jobs, getting a promotion, negotiating a higher salary, and starting a side hustle or business. When considering additional income sources, think about what you enjoy, what you’re good at, and how much time you have to dedicate to it each week.
Adding active income sources where you trade time for money such as taking on a second job can limit you as you only have a set number of hours to spare each day, but can also be enjoyable if you’re doing something you love.
Passive income sources where you make money in your sleep can take some time to set up but require minimal effort to maintain. Some ways of generating passive income include selling digital products online or receiving rental income from real estate. Here are some ways to increase your income:
Hop to a higher-paying job
You know the saying - the grass isn't always greener on the other side. And you know the inevitable rebuttal - the grass is greener where it's watered. And I want my grass (and my money tree) watered. And so should you! If it’s not getting watered where you are right now, make a move.
Job hopping can be one of the best ways to increase your income and build wealth. A new job means a new opportunity to negotiate employer offers. According to data from PayScale, the average person who negotiates their salary earns an extra $1 million over the course of their career. Now that’s what I call a wealth builder!
When you're looking for a new position, don't be afraid to ask for what you're worth. Research salaries for your role in your area and come to the table armed with data to back up your case. If you're currently underpaid and want to do a little digging to find out what you should be making, sites like Glassdoor and Paysa can give you a better idea of what others in your position and location are bringing home.
Negotiate a higher paying salary or promotion
Promote yourself. If you're already employed and like your job but want to make more money, consider asking for a promotion. According to the Harvard Business Review, women in particular face significant barriers when it comes to getting promoted. But that doesn't mean it's impossible and demonstrates exactly why you should promote yourself regularly and consistently. I wrote about why saving and investing is the key to true financial and flexibility for women. Check it out.
Start by taking a good hard look at your accomplishments over the past year. What have you done that's above and beyond what's expected of you? Write it down. Then, set up a meeting with your boss to discuss your career goals and how you plan to get there. Be prepared to present your case with evidence of your successes to back it up.
If a promotion isn't possible or doesn't make sense for your career path, think about ways you can add more value to your current role. Is there a way you can take on more responsibility or lead a project? If you can show that you're an asset to the company, you'll be in a better position to negotiate a raise.
If you’re currently in a job that you enjoy and are good at, it can be worth asking for a salary increase instead of a promotion. Do your research beforehand so you have an idea of what a fair salary would be for your position, location, and experience.
Remember to be confident but not arrogant, polite but also firm in your request. It can also be helpful to point out what value you’ve added to the company and how you’ve helped them save or make money, especially if you're already over contributing in your current role.
Start a side hustle
A side hustle is anything you do outside of your regular job to make extra money. The great thing about side hustles is that they give you the opportunity to make money doing something you enjoy. If you can find a way to make money doing something you love, it won't feel like work at all. There are endless possibilities.
A side hustle is also a great way to boost your annual income without having to commit full-time. It could be something as simple as driving an Uber, starting a blog and monetizing it with advertising, becoming a social media influencer, or selling products and services online.
To find a side hustle that’s right for you, think about what you’re good at, what you enjoy doing, and how much time you have to dedicate to it. If you’re not sure where to start, there are many online resources and communities that can help.
Once you have a few ideas, do some research to see if there’s a demand for what you want to offer and how much competition there is. If there’s already a lot of competition, you may need to be creative in how you market your offering or find a niche market. But please, stay away from get-rich-quick schemes. They often promise high income and free money for little effort. Just remember to do the sniff test - if it's too easy and it smells fishy, it probably is and you should run.
When starting a side hustle, it’s important to keep your day job until your new business is generating enough income to support you and your financial goals. This will help reduce financial stress and give you time to grow your side hustle into a successful business. Many business founders started out this way to build wealth fast.
Invest in passive income streams
If you want to make money without having to work for it, investing in passive income streams is a good option. Passive income is money that comes in without you having to do much, if any, work. This can come from sources such as dividends from stocks or interest from savings accounts - minimal effort after the initial investment.
Another option is creating products or services that can be sold online, such as an e-book, online course, or software program. Once you’ve created the product, you can set up a system so that customers can buy and download it without you having to do any additional work.
To be successful it’s important to choose an investment that will generate enough money to cover your costs and leave you with a profit. It’s also important to have a plan for what you’ll do with the additional income. Some of your options are reinvesting it back into your business, using it to pay down high-interest debt, student loan debt, or, my personal favorite, investing!
Venture into business
The wealthiest aren't workers but founders. Most self-made millionaires are business owners. Owning your own business has many advantages when it comes to building wealth. For one, you have the potential to make a lot more money than you would as an employee. And, if done right, your business can provide you with a big payday if acquired by a bigger business looking for what you've created.
Of course, starting a business is not without its risks. But, if you have a good business idea and are willing to work hard to make it a success, the rewards can be great. There are a few key things to keep in mind if you want to be successful as a business owner:
Find a need and fill it
The best businesses are those that solve a problem or meet a need that people have. To be successful, you need to identify a problem that people have and offer a solution that is better than what’s currently available.
Be passionate about what you do
If you’re not passionate about your business, it will be difficult to succeed. When you’re passionate, it shows in your work. This passion can be contagious, making it easier to attract customers, partners, and employees who believe in your business.
Be willing to work hard
Starting and growing a successful business takes a lot of hard work. Be prepared for long hours and late nights.
Build a great team
Surround yourself with people who are good at what they do and who share your vision for the business.
Offer something unique
There’s a lot of competition out there, so you need to offer something that sets you apart from the rest.
Focus on the customer
The success of your business depends on your customers, so it’s important to always keep them in mind.
These are just a few things to keep in mind if you want to venture into business. Starting your own business can be a great way to build wealth, but it’s not for everyone. There will be long hours and, at times, it may feel like you’re never going to reach your goals, not to mention start-up costs and significant time investment. But, if you stick with it and keep working hard, eventually your business will start to take off.
Improve your skill set
One of the best ways to increase your earning potential is to invest in yourself by improving your skillset. The more valuable you are to an employer, the more they will be willing to pay you and, in turn, the faster you can launch your wealth-building journey. There are a number of ways to improve your skill set, such as taking courses, attending seminars, or reading books on the subject. I also love checking out wealth-minded websites and publications like Barron’s, MarketWatch and Money.
If you’re looking to improve your skill set, it’s important to identify what area you want to focus on. Once you’ve done that, research different options and find one that fits your needs and learning style. For example, if you want to learn how to code, there are dozens of online courses available ranging from free to thousands of dollars. If cost is a concern, there are plenty of free resources that can help you get started, such as Codecademy.
I recognized that if I was going to be financially independent, I needed to learn about the stock market and, more importantly, how to invest. The stock market was a scary place to me, but I dedicated 30 minutes a day to reading and learning and eventually took some programs and then became a coach. Investing in the stock market is one of the best ways to build wealth and even a passive income source.
Don’t be afraid to invest in yourself. The more you know, the more valuable you are to an employer. And, as your skillset improves, so will your earning potential and your wealth.
Save your money to build wealth
Saving money is the second step to building wealth. If you don't first save money, you're missing a crucial step in your journey to financial freedom. Part of your financial plan should be to save money.
Once you start earning enough income and you make more than you spend, it’s important to pay yourself first and automate the money coming in to be paid to your savings account every month. Very often people pay themselves what is left over after paying everyone else first, but this can quickly eat up the additional income you have every month.
To make sure you're prepared for any emergencies, try to save enough money to cover 3-6 months of expenses that you tuck away in a high-interest savings account. This is often referred to as an emergency fund. You want this money to be liquid, meaning not the money should not be tied up in investments or assets because in case of emergency you need access to it immediately. Here are a few ways to go about setting up an emergency fund:
Open up a high-interest savings account
You can choose to go with your current bank, or, my favorite, a different bank. The reason why I like using a different bank is that I like to make it as difficult as possible to touch that money by removing all temptation of easy access.
Automate your payments
Once you've established your savings rate ie. how much and how often you will be making contributions based on your earned income or any extra money you're making, you're going to set up auto-pay. Automating payments makes it easy to save enough money for an emergency fund, and can even help you save for retirement. Automate those payments too!
Did you know that most employers have an option to pay your salary into different accounts based on a fixed percentage each month? If you opt in to this strategy, your savings portion of your salary never even hit your bank account so you won't be tempted to spend it.
The vast majority of Interest rates on these accounts are not going to give you the same rates of return that investing in the stock market will give you (in an investment account), but they will generate income and provide you with some financial security and peace of mind in case something happens and you have an extra bill to cover. An emergency fund can be the difference between staying on track with your wealth-building goals or going back into debt. It provides financial stability.
Invest your income for true wealth building
Undoubtedly the best way to build wealth over time is to invest money. Building wealth starts with making money, but what's more important is keeping it! When you hit retirement age, whether that's in your 20's (those unicorns!) or your 60's and 70's, you want to have enough retirement savings in retirement accounts and accumulated wealth to have a standard of living that meets your personal finance goals. Everyone's financial situation is different, and you will have your own path, but one thing is for sure, if you don't start investing and building your financial education now, you're missing out on precious time for wealth building.
When choosing your investment options, it’s a good idea to think about how you want to diversify your investments and your risk tolerance. For instance, younger investors can afford to take on more risk as they have a longer time horizon to recover from market downturns than older investors closer to retirement. When you're about to retire and don't want to jeopardize your retirement savings, it's better to stick to investing with certainty rather than with speculation.
There are also other strategies. Some people put all their money into real estate or all their money into the stock market, even cryptocurrencies or NFT's. What's important is that you invest in things that you're capable of understanding that matches your values. Vote with your dollar!
With a disciplined savings plan, there are many ways to invest and grow wealth including paying into your retirement account, buying index funds and stocks, and buying real estate.
Personally, real estate investing is one of my favorite wealth-building tools and I love adding cash-flowing properties to my portfolio. It's one of my core asset allocation pillars. There are other assets too, but real estate investing and wealth building go hand-in-hand for me. It's one of the best ways to build wealth over time and it increases my earned income.
Should I pay off debt or invest?
When people have a lot of unsecured debt and any other high-interest debt like credit card debt, it may make sense to get rid of them before investing. Few investments pay more than card payments do and getting that credit card balance back to zero will lead to expenses saved on interest payments. When you pay off the credit card debt, you can repurpose that payment towards saving and investing. This part is super important - Ensure you pay your credit card bill in full every month so that you avoid paying interest.
You decide how to build wealth in the way that matches the investment strategies you pick. Whatever you decide, take the time to set up your investment plan today and build your future wealth. If you don't know where to start, talk with a financial advisor or certified financial planner.
Congratulations on making it to the end of this blog post! You are well on your way to understanding how to build wealth, even if you don’t know where to start. The first step is setting realistic goals and then increasing your income so that you can save more money. Once you have a cushion saved up, investing in assets such as stocks or real estate can help grow your net worth over time. I hope these tips have motivated you and given you some ideas for ways that you can improve your financial situation. If you want more information, please check out my free resources to boost your financial education and to help you get started. Thanks for reading – now go take control of your finances and achieve success!