What’s the Secret to Building Wealth

Many believe wealth comes from a high-paying job, striking it rich in the stock market, or inheriting money. However, building wealth stems from a few principles that anyone can apply. It’s about creating habits, making informed financial decisions, and staying disciplined. Wealth-building doesn’t require a windfall – it’s about starting where you are and taking small, intentional steps.

Picture your finances as a work in progress, like leveling up in a video game or learning a new sport – each move counts. By forming habits, making wise choices, and staying committed, you can create a financial foundation that lasts. Whether you’re saving for your first big purchase, climbing out of debt, or planning for long-term goals, the principles of wealth-building are accessible to everyone. Here’s your step-by-step guide to building wealth, designed to meet you where you are and grow with you.

Step #1: Control Debt

Debt is often seen as the enemy of wealth, but not all debt is bad. Responsible debt management can help you build a strong credit score and lower future borrowing costs. However, it’s crucial to control high-interest debt, particularly credit cards.

Did you know many credit cards charge interest rates exceeding 25% APR? Compare that to the 7% annual return you might earn on an investment portfolio. It’s easy to see how costly credit card debt can be. You’re losing wealth-building potential if you pay 25% APR on your balances but earn less in investments. 

What to Do:

• Focus on paying down high-interest debts first, starting with credit cards.

• Consider consolidating debt or transferring balances to lower-rate options.

• Speak with a financial advisor to explore strategies for reducing debt efficiently.

Step #2: Build an Emergency Fund 

Unexpected expenses can derail even the best financial plans. That’s why building an emergency fund is essential. Aim to save 3-6 months of living expenses. It might sound daunting, but having this safety net allows you to handle unexpected costs – like car repairs or medical bills – without relying on high-interest loans. 

• Avoid costly payday loans or credit card debt in emergencies.

• Gain peace of mind knowing you’re prepared for financial surprises.

 How to Start:

• Open a dedicated savings account separate from your everyday spending funds.

• Set aside a small amount from each paycheck and gradually increase your contributions.

• Use payroll deductions to put your savings on autopilot – set it & forget it!

Step #3: Save Regularly

Saving isn’t just about setting aside money – it’s about consistency. Financial advisors often recommend saving at least 15% of your take-home pay. That might feel impossible at first, but that’s okay. Start smaller. Aim to save 5% and work to create consistent savings habits. Then, as you become more confident in managing your budget or receive pay raises at work, you can begin increasing your savings contributions. 

Tips for Success:

• Treat savings like a bill that you must pay yourself each month.

• Start with a basic savings account, then graduate to money market accounts and certificates as your savings grow.

• Once you have an emergency fund, explore retirement accounts (like IRAs) or market-based investments for greater returns.

Step #4: Boost Your Credit Score

A good credit score doesn’t just open doors to lower loan rates, it’s a critical factor in your financial future. Many people don’t realize that an excellent credit score can unlock lower insurance premiums, waive deposits on utilities, help secure an apartment lease, and open the door to specific employment opportunities.

However, the most significant role a great score plays is in your ability to borrow money at lower costs. For example, two people might buy the exact same car yet pay substantially different monthly payments based solely on their score.

Building wealth stems from your ability to limit unnecessary expenses. Whether you’re borrowing money for a new home, car, or other need, paying the least amount of interest possible should be your primary goal.   

Tips to Improve Your Score:

• Pay all bills on time, every time. Set reminders or use auto payments to never miss a due date.

• Reduce your outstanding credit card debt. Aim to keep credit card balances below 30% of your available credit limit.

• Only borrow money when necessary and avoid opening too many new accounts in a short period.

Step #5: Build Passive Income

Passive income is the holy grail of wealth-building. It’s money you earn without actively working for it, such as through investments. Imagine earning a stream of income without lifting a finger – that’s how genuine wealth comes to light. 

How to Generate Passive Income:

• Invest in stocks, bonds, or dividend-paying funds.

• Use compound interest to grow your wealth over time. The longer you keep money invested, the greater the rewards.

• Consider real estate or other income-generating assets if you’re ready for more advanced strategies.

• Write a book or create an online course that generates royalties for years to come. 

Pro Tip: Even small, consistent investments can lead to significant growth over decades. Start early and let time work in your favor.

Step #6: Practice Self-Control

Wealth-building isn’t just about how much you earn or save, it’s primarily focused on how much you spend. Practicing self-control and sticking to a budget are critical skills you must learn to master. And that’s not easy nowadays with the constant onslaught of advertisements and peer pressure online. However, if you are intentional in your spending and financial moves, you’ll reap the benefits of long-term success.

Actionable Tips:

• Create a realistic budget. Then, schedule a time on your calendar to review it.

• Identify unnecessary expenses and redirect those funds toward savings or debt repayment.

• Avoid impulse purchases by giving yourself a “cooling-off period” before buying non-essential items.

• Give yourself a “fun money” budget to use. That way, you can still splurge, but within reason. 

Remember: Every expense and every dollar earned is an opportunity. Make mindful choices that align with your long-term goals.

We’re Here to Help!

Building wealth takes time, discipline, and a clear plan and we’re committed to helping you succeed. Whether you want advice on managing debt, starting an emergency fund, or exploring investment opportunities, we’re here to guide you every step of the way. Please stop by any of our convenient branch locations or call 248-322-9800 extension 5 to speak with a team member today.

 

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