Want to become wealthy someday? The answer is probably “yes.”
However, if a huge inheritance is out of the question, you’ll have to build wealth the old-fashioned way. You’ll have to work hard, increase your earnings, save your pennies, and invest wisely. And, while you may want to focus on beefing up income, your net worth should also be a priority.
Your net worth is the value of everything you own, minus your debt. People with high net worths tend to have a greater feeling of financial security and can often reach financial independence sooner.
Live on Less Than You Earn
In order to build wealth, you have to save and invest your money consistently. If you always spend everything you earn, you’ll never have enough to do this. This is why it’s important to live on less than you earn.
While you’re spending less money, it also helps to reduce your costs here and there. This, in turn, will help you from taking on more debt – a huge roadblock for increasing your net worth. Also worth noting: when you free up enough of your income to either pay off debt quickly or avoid it altogether, this gives you more money to save for your future self and ratchet up your net worth.
Another pro tip: Create a habit of spending less than you earn by sticking to a realistic budget and paying yourself first.
Automate Your Savings
Increasing your net worth doesn’t have to be painstaking work. You can take steps in the right direction by simply setting up automatic savings systems.
Julie Rains, a mortgage-free homeowner and debt-free investor, suggests setting up automatic transfers to your savings and investment accounts to build wealth.
“Automatic transfers can be done by enrolling in a 401(k) plan at work or setting up transfers from your checking account to an investment account,” says Rains, who writes about finance on her website, Investing to Thrive.
“Sure, you can initiate a transfer periodically, but by making the savings or investing automatic, you don’t waste energy on revisiting your decision every month.”
According to Rains, you don’t have to set aside thousands of dollars monthly to save and invest successfully. You can start with just $25 in a savings account and increase your contributions over time. The important thing is to build a solid habit where you prioritize saving for your future, she says.
Watch Less TV
I’ve been watching popular financial guru Dave Ramsey’s YouTube channel for the past few months. One thing he said that stood out to me: millionaires don’t know who got kicked off the island because they’re not spending copious amounts of time watching television.
Instead, they are reading, educating themselves, and spending their time pursuing profitable pursuits. Keith Schroeder, an accountant who reached a seven figure net worth by the age of 30, agrees with this sentiment.
“There is a direct relation to how much TV a person watches and how much they earn,” says Schroeder, who blogs for his website The Wealthy Accountant.
“There is also a direct relation to how much a person reads and his net worth. I choose to limit my television viewing to educational videos, while I also choose to read meaningful books daily. My net worth has increased as a result.”
Change Your Money Mindset
And Richards, 44, should know a thing or two about this. He amassed a net worth of $1.2 million by April of 2016 and then quit his job. As of February 2018, his net worth was around $1.53, according to his blog.
“I think of every dollar in terms of its future potential, not what it can do for me today,” says Richards, who is now retired and planning his next move.
“If I have $100 in my pocket, I could go spend that on a nice dinner but I could also save the money instead,” he says.
Richards recommends investing in index funds. In an S&P 500 index fund, for example, his money earns about 10% annually and doubles every seven years. Better yet, if he lives for at least another 42 years, the money he invests will double six times.
“It’s amazing what small savings can do when given the time to grow,” says Richards.
“If you’re 20 and expect to live to 83, that money will double nine times and end up at $51,200 even though you just started with $100.”
Learn From These Habits
As you can see, Richards has used his knowledge of the market’s growth to motivate him to save and invest, thus boosting his net worth.
By following these 4 tips and developing healthy money habits, you too can be on your way to increasing your net worth!