Building up your wealth, or net worth, is not a quick fix…it takes time. But the good news is that there are simple steps you can take to make progress without being an investment whiz. Check out these 4 tips:
Save, save, save
Your wealth includes what you have in checking and savings. So continue to add money monthly to savings. Or, if you haven’t gotten that set up yet, get started now. Setting up automatic deposits into your savings monthly will help you build a balance faster. Plus, when it’s in a separate account and harder to get to, you’re less likely to touch that money.If you really want to build your wealth, make it a priority and a habit.
Pay down debt
Start making extra payments to one of your debts. And you can choose either the highest interest (saving you the most money) or the smallest balance (giving you more breathing room sooner). When the debt of your choice is paid off, go to the next highest interest or smallest balance.
Keep in mind that if you have debt, it’s just as important to pay it down as it is to save money. And yes there are ways to do both and it’s important to find that balance. Debt is already a liability, but if you don’t have savings you’re even more at risk.
And if your current financial situation makes it tough for you to pay extra, check out our Debt Management Plan. It helps you pay off your debt faster and save money. Call LSS Financial Counseling at 888.577.2227 for your free financial counseling session from a local, trusted nonprofit. Not interested in calling? Then GET STARTED ONLINE instead.
Trim your expenses
Look at your expenses and determine what you can cut out or reduce. Spending less = saving more = building wealth. Try to find creative and frugal ways to save money. If you spend less on non-necessities, that allows you to set aside more money into savings and pay down debt faster. Remember, you’re only making temporary sacrifices to achieve long-term financial freedom.
Increase retirement contributions
Unless you plan on working indefinitely, if you haven’t started saving for retirement, start ASAP. For ideas on how to start, read 3 Ways to Save for Retirement.
If you already have a 401k or 403b through your employer, take full advantage of your employer match. It may be a little less spending money each payday, but your employer matches what you contribute (with limitations, of course). That’s FREE money! Another way to increase your retirement savings is to use your bonus, raise money, tax refund, or other cash windfalls to add to your retirement.
Buy instead of renting
Renting is great in many stages of life, but it does not help you build wealth. On the other hand, buying a home does just that because home equity (what you actually own, not what you owe) is factored into your net worth. It may take a while to pay down/off your mortgage and build equity so this is a longer-term solution. However, if you’re ready to break away from noisy neighbors and weird hallway smells, buying a home is a great alternative and will get you on the road to building net worth.
With that said, buying is not always the best way to build wealth if your area doesn’t have a great housing market or if renting is just plain better in your situation. So take your time and think carefully before making this major purchase.
It will take persistence, a little sacrifice, and time, but you can build wealth on your own.
Author Elaina Johannessen is a Program Director with LSS Financial Counseling.