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From the latest cryptocurrency memecoin to flipping penny stocks, there’s no shortage of get-rich-quick schemes. Don’t be fooled by their promises of easy riches – the schemes hide huge risks and the vast majority of investors lose their money.
Instead, spend your time learning how to build wealth, which requires you to create an investment plan and adopt a long-term mindset. Follow these eight simple steps to start building lasting wealth.
1. Start by making a plan
Building wealth starts with creating a financial plan. This means taking the time to define your goals and figure out how to achieve them.
“Building wealth starts with a vision and a plan,” says Peter Cacciotta, owner of Asset Management and Advisory Services of Lee County.
Hiring a financial advisor is a great way to create a wealth building plan. It’s a more expensive option, especially for beginners, but choosing a Certified Financial Planner (CFP) advisor means you’re paying for planning experience.
A more affordable option may be to purchase a robo-advisor that offers access to financial advisors. Check out bots like Betterment or Ellevest, both of which offer managed investment portfolios and the ability to chat with advisors.
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2. Make a budget and stick to it
Many people dread the “b” word, but budgeting is the cornerstone of your wealth building strategy. Creating and sticking to a budget will help you increase your chances of sticking to your plan and reaching your financial goals.
Budgets also help you understand where your money is going each month and prevent behaviors that threaten your goals, such as overspending.
3. Build an emergency fund
When the furnace goes out or the refrigerator stops working, where does the money come from without an emergency fund? Lori Gross, a financial and investment advisor at Outlook Financial Center, says credit cards can be a burden and cause you extra costs and fees, like high interest rates.
By building an emergency fund, you can protect your credit and enjoy the benefits of earning interest from an online savings account, while having the peace of mind knowing you have money in the bank to cover life’s surprises.
4. Automate your financial life
By automating your savings, investments, and bill payments, you’ll eliminate the possibility of forgetting to allocate money toward your goals or make progress on paying off your debt.
That’s why Michael Morgan, president of TBS Retirement Planning, recommends that you automatically deduct the total amount you’ve budgeted for each of your expenses and goals from your paycheck and apply it to each expense.
This is especially important when saving and investing, he says. “By doing this, you resist the temptation to spend instead of investing. Soon you won’t miss out on automatic deductions and your contributions will be made regularly,” he says.
5. Manage your debt
If you’re carrying a balance each month, you’re not alone: The average American has more than $90,000 in debt, according to Experian research.
Of course, not all debt is created equal, and some, such as mortgages, may even be considered “good” debt due to their generally low interest rates and wealth-building potential. Some experts even think of a mortgage payment as a type of forced savings account because you can get at least a portion of your monthly payment back when you sell.
But if you’re racking up a lot of bad debt every month, like high-interest credit cards, your financial goals could be in jeopardy. That’s why living debt-free has an ultimate goal, says Gross.
If you’re not sure how to get started, consider using the debt snowball or debt avalanche settlement methods. Remember: it’s possible (and often recommended) to save money and pay off debt at the same time.
Then, as your balance goes down, you’ll have more money to spend on emergency savings and investments.
6. Maximize your retirement savings
Uncle Sam offers you several different ways to save for retirement, and experts encourage you to take advantage of as many as possible. This means putting as much as possible into your employer’s retirement plan (401(k)) and individual retirement accounts (IRAs).
If contributing the legal maximum is difficult for you right now, make sure you’re saving enough to at least meet any 401(k) match your company offers. This means that if your employer offers a 3% match, you will contribute at least 3% of your salary each pay period.
Don’t be discouraged if you can’t invest a lot at first. “Most of my clients have invested a small amount of money over a long period of time,” says Cacciotta. So, the power of compounding helps turn these small amounts invested into wealth.
If you’re not sure about the best way to start investing in your 401(k) or IRA, consider a target date fund or robo-advisor that manages an adjusted portfolio of funds based on the number of years you have until retirement.
7. Be diversified
If you hold to the idea that people only get rich by holding highly concentrated positions, perhaps by holding large amounts of Bitcoin – loosen your grip. Having a diversified portfolio with different types of investments can protect your accumulated wealth and allow you to profit even during market downturns.
“A diversified portfolio includes a mix of assets that don’t move in the same direction and amount at all times and help reduce volatility over time,” says Veronica Willis, investment strategy analyst at Wells Fargo Investment Institute.
8. Increase your income
Although this is not a step you can take in online brokerage, investing in yourself by increasing your income is an important step in how to build wealth. The more you earn in your lifetime, the more money you can invest.
“If you’re living comfortably on your current salary and you’re getting a raise, this is a great opportunity to start building wealth,” says Morgan. saving an emergency fund,
In fact, financial expert Michael Kitches recommends saving at least half of every raise you get to position yourself for a secure retirement. This allows for a gradual improvement in quality of life, and also ensures that you don’t fall victim to living standards that make retirement impossible.
If you don’t think you’re eligible for a raise, schedule time with your boss to figure out what steps you need to take to advance in your current role. You can also consider picking up a side job or trying out a passive income idea.
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