Top Ten Ways to Build Wealth
Eileen St. Pierre, The Everyday Financial Planner
Wealth is certainly a relative term. For many, having a high salary or owning a fancy car may be considered a sign of wealth. For others, having a loving family and good health makes us feel rich. In financial terms, we define wealth as someone’s net worth.
Net Worth = Total Assets – Total Debts
In its July 2012 issue, Money offers 101 Ways to Build Wealth. Here are my ten favorites:
- Focus on what’s most important – How you invest is not as important as how much you save.
- Make your savings untouchable – Keep your savings in a separate account that you can only access online. Out of sight, out of mind.
- Be a cheapskate – The surest way to improve investment returns is to minimize investment expenses. Consider index funds and low-cost exchange-traded funds (ETFs).
- Set everything on autopilot – Save automatically through your retirement plan at work. Set up automatic transfers from your checking account into an emergency savings account and college funds.
- Put away your raises – Each time you get a bump up in salary or a bonus, put at least half in savings. Do the same thing with your income tax refunds.
- Pull yourself out of the hole – Credit cards are almost never considered “good” debt. Just pay it off. Yes, you can still pay with cash these days.
- Skip the flavor of the month – Stick to a long-term financial plan and avoid what’s popular right now. Take stock tips with a large grain of salt.
- Personalize your accounts – People who label their savings accounts with specific goals put away 31% more money than those who don’t.
- Curb your enthusiasm – Control impulse purchases. When going shopping, divide the cost of something you want to buy into how many times you think you will use it to see if the price is worth it.
- Keep your gains from Uncle Sam – Take advantage of accounts like Traditional IRAs and 401(k)s that allow you to defer taxes until you retire. If you rather pay taxes now and stiff Uncle Sam in retirement, choose Roth retirement accounts.
Visit my Basic Financial Management page for more information.