How to Build Wealth – Forbes Advisor

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There’s no shortage of get-rich-quick schemes, from the latest crypto memecoin to flipping penny stocks. Don’t be fooled by their promises of easy riches – the schemes hide giant risks and the vast majority of investors end up losing money.

Instead, spend your time learning how to build wealth, which requires you to develop an investment plan and adopt a long-term mindset. Follow these eight simple steps to start creating a lasting legacy.

1. Start by making a plan

Wealth creation begins with the development of a financial plan. It means taking the time to identify your goals and figure out how you can achieve them.

“Wealth creation starts with a vision and a plan,” says Peter Cassciotta, owner of Asset Management and Advisory Services of Lee County.

Hiring a financial advisor is a great way to start building your wealth-building plan. It’s a more expensive option, especially for those just starting out, but choosing an advisor who’s a Certified Financial Planner (CFP) means you’re paying for planning experience.

Looking for a robo-advisor that also offers access to financial advisors may be a more affordable option. Check out bots like Betterment or Ellevest, both of which provide managed investment portfolios and the ability to speak with advisors.

2. Set a budget and stick to it

Many people dread the “b” word, but budgeting is a key part of your wealth building strategy. Establishing a budget and sticking to it increases your chances of carrying out your plan and achieving your financial goals.

Budgets also help you understand where your money is going each month and prevent behaviors that can put your goals at risk, like overspending.

3. Build your emergency fund

When the furnace goes out or the fridge stops working, where does the money come from if you don’t have emergency savings? Lori Gross, financial and investment advisor at Outlook Financial Center, says credit cards take a hit and give you additional costs and fees, like exorbitant interest rates.

By creating an emergency fund, you can protect your credit and enjoy the benefits of earning interest on an online savings account, while enjoying the peace of mind of knowing you have money in the bank. to cover the surprises of life.

4. Automate your financial life

By making saving, investing, and paying bills automatic, you virtually eliminate the risk of forgetting to set aside money to meet your goals or make progress in paying down debt.

That’s why Michael Morgan, president of TBS Retirement Planning, recommends that the total amount you’ve budgeted for each of your expenses and goals be automatically deducted from your salary and applied to each expense.

This is especially helpful when it comes to saving and investing, he says. “By doing so, you resist the temptation to spend rather than invest. Soon you won’t miss the money that’s automatically withdrawn and your dues will be paid on a regular basis,” he says.

5. Manage your debt

If you carry a balance month-to-month, you’re not alone: ​​The average American has more than $90,000 in debt, according to research from Experian.

Of course, not all debt is created equal and some, like mortgages, can even be considered “good” debt, thanks to their generally low interest rates and wealth-building potential. Some experts even consider a mortgage repayment a type of forced savings account, because you’ll likely see at least a portion of your monthly payment back when you sell.

But if you’re running up a lot of bad debt every month, like high-interest credit card bills, you could jeopardize your financial goals. That’s why it’s important to have a repayment plan, Gross says, with the ultimate goal of having a debt-free life.

If you don’t know where to start, consider using the snowball or debt avalanche methods. And remember: it’s possible (and often even advisable) to save money and pay off debt at the same time.

Then, as your balances drop, you’ll have even more money to spend on your emergency savings and investments.

6. Maximize your retirement savings

Uncle Sam offers you different ways to save for retirement, and the experts encourage you to take advantage of them as much as you can. That means putting as much as possible into your employer’s retirement plan — think 401(k) — as well as Individual Retirement Accounts (IRAs).

If contributing the legal maximum is going to be hard work for you right now, make sure you save at least enough to get any 401(k) matches provided by your company. This means that if your employer offers a match of 3%, you contribute at least 3% of your salary each pay period.

Don’t be discouraged if you can’t invest a lot to start with. “Most of my clients have invested a small amount of money for a long period of time,” Casciotta explains. The power of capitalization therefore helps to transform these small sums invested into fortunes.

If you’re unsure of the best way to start investing in your 401(k) or IRA, consider a target date fund or a robo-advisor that manages a custom fund portfolio based on the number of years what you have left until retirement.

7. Stay Diverse

If you cling to the idea that people only get rich by having very concentrated positions, perhaps by holding large amounts of Bitcoin, consider loosening your grip. Having a diversified portfolio with different types of investments can both protect the wealth you’ve accumulated and position you to reap rewards even when the markets go down.

“A diversified portfolio includes a combination of assets that don’t necessarily move in the same direction and in the same magnitude at all times and is designed to help reduce volatility over time,” says Veronica Willis, strategy analyst investment at the Wells Fargo Investment Institute.

8. Increase your income

Although it’s not a decision you can make in an online brokerage, investing in yourself by increasing your income is an important step when it comes to building wealth. The more you earn in your lifetime, the more money you have to invest.

“If you’re living comfortably on your current salary and getting a raise, this is the perfect opportunity to start down the road to building wealth,” says Morgan, whether that means contributing more to your savings- retirement, pay off your debts or supplant increase your emergency fund savings,

In fact, financial expert Michael Kitces recommends that you save at least half of every raise you get to position yourself for a secure retirement. This allows you to gradually improve your quality of life while ensuring that you do not fall victim to a standard of living that you will be unable to maintain in retirement.

If you don’t think you’re in a position to receive a raise, schedule time with your boss to work out steps to progress in your current role. You can also consider getting into a side business or trying a passive income idea.

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