Most people don’t want to work forever. At some point in their lives, they hope to retire – or at least have the option to retire. Unfortunately, there are too many people who think that they’ll never accumulate the wealth that they need to retire. Others get wrapped up in gambling or other get-rich-quick schemes, hoping to skip the years of hard work required to accumulate sufficient wealth to have financial independence. While everyone’s background and financial situation is different, what follows are several tips that can help build wealth over time, moving you closer to financial independence and potential retirement.
- Pay yourself first. Everyone should be saving a portion of each paycheck that they get. This money should be immediately set aside, so it isn’t built into monthly budgets. Also try not to spend bonuses or other windfalls, but rather to put these away in savings immediately. It’s important to start saving as early as possible due to the power of compound interest – the longer your money is growing at some interest rate, the more you get to earn interest on interest.
- Try to cut expenses wherever you can. Once you’ve started saving, regularly review your monthly expenses and try to identify places where you can cut back. This will allow you to save a larger percentage of your pay, allowing your total savings to grow faster. It will also help you to build the strong habit of not spending more than you should. In addition to helping you save, keeping yourself on a small budget can ultimately help you be able to retire because you won’t need as much income to sustain your lifestyle.
- Once you’ve built a small nest egg, start to invest. Investing your savings in ways that will appreciate or provide passive income is a critical step in building wealth. If you never use your capital, it can just sit in an account earning very little or no interest. Even low-interest savings vehicles from banks can provide you with a small amount of regular growth on your money, which can make a big difference over time. As part of this step, it’s often a good idea to meet with an investment counselor and develop a specific investment strategy tailored to your goals, risk tolerance, etc. However, it’s also a good idea to invest in what you know. Real estate, for example, can be a good place to invest if you work in real estate or have been exposed enough to the industry to develop a good working knowledge of ins and outs.
- Generate passive income or accumulate appreciating assets. The key to building financial wealth is to have your money working for you. This means that, in addition to your earned income, you want to be developing additional revenue streams from interest on investments, rental income, or dividends from stocks or small businesses. As you develop these investments, you want to avoid living on any of the income. Instead, reinvest it so it can grow even faster, providing more money for you to eventually retire. Developing these revenue streams early on can also give you an idea of how much income you can earn in retirement, and how much you’ll have to live on.
- Grow equity. If you own a home, gradually paying down your home loan will help you develop equity in the home. The same thing is true for paying off car loans. Paying down student loans won’t directly give you equity in an investment, but it can still help you build wealth by allowing you to save a higher percentage of your paycheck once loans are paid off. However, you can also build equity by investing in assets that appreciate over time, even if that appreciation is modest and just keeps up with inflation. Most assets appreciate over the long-term, despite short-term volatility. Just ask anyone who has owned the same house for over 40 years. This appreciation be slight, even if only because replacement costs rise with inflation. It can also be true of classic cars and some collectibles, but these tend to be riskier investments.
If you want to build financial wealth for more money and the chance to retire, there are a number of potential individual strategies to employ for your particular circumstances. However, there are certain keys that almost anyone can use to put themselves on the road to financial independence and more wealth, starting with those above. Regularly saving a large portion of your paycheck, then starting to invest for income and/or appreciation, and growing equity in your investments are all simple steps to take for growing wealth so you have more money at retirement.
Sarah is a money-savvy writer and mum of two based in Manchester, UK. She is the Brand and Marketing Manager at the UK loan website Oink Money (oinkmoney.com), as well as the founder of a well-known money-saving website. Sarah is originally from Edinburgh where she studied Business and later worked in finance for a FTSE 100 company. She left her career in finance to pursue her passion for writing, a move which allowed her to travel the world with her laptop while running her blog.
Sarah has been writing about money, debt and marketing for the last 6 years and has contributed to a number of prominent finance and marketing blogs with many of her market-leading money saving tips. When she’s not working, she enjoys skiing, travelling and days out with the kids.