September 19, 2024

How to Build Wealth: The Ultimate Guide

Building wealth isn’t about becoming a millionaire. It’s about being strategic about where you put your money — and that means you can achieve financial security (and then some) no matter what job you work.Taking good care of your money can feel like a monumental task, but it doesn't have to. Here’s a comprehensive guide to teach you how to build wealth for the long term. It's time to learn that managing wealth is everybody's business.

Step 1: Define your financial objectives

First, define your financial goals — what you're working towards. By writing them down, you create a contract with yourself, giving you motivation and purpose. Having clear financial objectives also serves as a roadmap to guide your decision-making process and help you prioritize the steps you need to take.

Remember, everyone has different financial aspirations. Do your best not to sidetrack your financial journey by comparing yourself to others. Instead, focus on what's best for you and your family's future. Paying the rent or buying a used car is more important than purchasing a home or driving an expensive vehicle, if that’s where you’re at.

Some possible financial goals include:

Establishing an emergency fund
Upgrading to a bigger apartment
Saving for a child's post-secondary education
Putting away enough for a downpayment on a house
Becoming debt-free
Retiring by a certain age
Having a certain amount in a savings account

Step 2: Live within your means

Every dollar you earn is a resource you can use to reach your goals, and the more you save, the more you can achieve.

There are two ways to have more money in your pocket: earn more and spend less. Both are easier said than done. The challenge with earning more is that it’s easy to experience lifestyle creep, which happens when your spending increases as your income does. And the challenge with spending less is cutting out some things you love.

Instead, make a budget that tells you how much you can spend and where. Budgets don’t have to feel like restrictions — they're tools to give yourself permission. Create one based on your necessities, debts, and savings goals and adjust it as circumstances change to avoid overspending.

Some more tips for avoiding overspending and living below your means include:

Tracking and reviewing all income and expenses at the end of the month
Picking up temporary part-time or freelance work to boost your income
Asking for a raise or putting in overtime
Automating savings transfers from your checking account
Thinking through large purchases to avoid impulse buys

Step 3: Build an emergency fund

It's difficult to grow wealth without having an emergency fund. Studies show that over 20% of Americans have no emergency savings at all, which means they’re one car repair or hospital stay away from getting into debt. It may not seem like a problem now, but you never know when something will happen.

Ideally, an emergency fund has a few months' worth of expenses to tide you over in case of significant setbacks like layoffs. But focusing on a smaller amount, like $1,000, is an excellent place to start. That $1,000 lets you absorb most emergency expenses without sacrificing your financial objectives.

Step 4: Pay off debt

There are two common approaches to paying off debt: the debt avalanche method and the debt snowball method. The debt avalanche method is the most cost-effective approach because you pay only the minimum on your debts except for the most expensive ones. You focus most of your debt repayment funds on the most expensive accounts until they’re gone. Then, proceed to the second-biggest. The challenge here is that making big payments is easier said than done.

The snowball method involves repaying your smallest debt first, which gives you a small win, then paying off the next smallest, which gives you another win, and so on. This helps you build momentum and build up to the most difficult payments.

Step 5: Start a retirement fund

Regardless of your financial objectives, you probably want to retire at some point. Retirement planning sets you up for a secure financial future during your golden years, helping you have a comfortable retirement without stressing about money.

There are many different ways to save for retirement. Two of the most popular methods are Roth IRAs and 401(k) savings plans. Both of these account types let you invest money and let it grow while deferring the tax to when you retire and are in a lower income bracket.

IRAs are individual savings plans, while 401(k)s are corporate ones. You can contribute to one or both of these yearly up to certain limits. It's recommended to maximize your contributions, particularly when you're young and working, to give your money time to grow and earn as much as possible in interest and investments. And in many situations, employers also match 401(k) contributions up to a specific limit, meaning you can essentially get free money by saving for retirement.

Step 6: Start investing

Managing wealth comes in many forms, and learning how to grow money is one of them. Making your money work for you is all about finding the best places to put it, and that starts with investing.

When you invest your money, it grows with little to no day-to-day involvement from you. The catch is that some types involve risk — your funds could shrink before they grow. Consider talking to a financial advisor at your local bank to develop an investment strategy that's right for you.

Here are some possible investments you may want to consider:

Stocks
Bonds
Mutual funds
Real estate
Exchange-traded funds (ETFs)

Step 7: Optimize your tax strategy

It’s easy to let tax complications and jargon get the best of you. But when you investigate how taxes work, you set yourself up to save money and even earn some back.

Take some time to learn how you can create a tax strategy that maximizes your savings and retirement contributions while lowering your tax bill. Here’s how:

Maximize your retirement account contributions
Investigate and take advantage of the tax credits you're eligible to claim
Donate to worthy causes
Invest in a 529 plan for a child's future education
Invest using tax-efficient accounts
Decide to file single, married filing separately, or married filing jointly, depending on the situation
Make business expense deductions when self-employed

Working with an accountant or another certified financial professional can help you start off on the right foot and make the most out of every tax season.

Step 8: Build good credit

The world runs on credit. And having a good credit score could make or break buying a house, car, or even a cellphone. The stronger the score, the more access you have to better credit cards and loan agreements, meaning you pay less interest and save money.

You don’t have to take out a big loan to build your credit score. To start, pay all bills on time and don’t use too much credit at once. Using a credit card effectively is also a great option because it shows potential lenders you’re responsible.

Take your first steps with EarnIn at your side

Whether you’re trying to get rich or start saving and investing, financial journeys can feel long and lonely. But they don't need to be. If your financial goal is to travel the world, pay off debt, or simply have peace of mind, having access to your money as you earn it is a powerful tool for avoiding debt and staying on track.

EarnIn is here for just that. With the Cash Out tool, you can access your money while you work — up to $150/day and up to $750/pay period with no interest, no mandatory fees, and no credit checks. Plus, EarnIn’s free Credit Monitoring helps you keep tabs on your credit score.

Download EarnIn today and make every day payday.

Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services. EarnIn is a financial technology company, not a bank. Banking services are provided by our bank partners on certain products other than Cash Out.

1. EarnIn does not charge interest on Cash Outs. EarnIn does not charge mandatory fees for use of its services. Restrictions and/or third party fees may apply, for more information please review our Terms of Service available at http://EarnIn.com/TOS.

2. Calculated on the VantageScore 3.0 model. Your VantageScore 3.0 from Experian® indicates your credit risk level and is not used by all lenders, so don’t be surprised if your lender uses a score that’s different from your VantageScore 3.0. Learn more: https://www.experian.com/assets/consumer-information/product-sheets/vantagescore-3.pdf