Building wealth is something almost anyone can do with the right plan. A high income or a large inheritance make it easier to save and plan for old age, but those are not necessities. Your financial attitude, especially when it comes to savings and debt, can help you pursue your life goals. With this information, you can assess your current financial situation and make changes that improve your path to long-term wealth accumulation.
Improve Your Cash Flow
To determine the best way to build your wealth, you need to understand your cash flow. Cash flow is the rate at which money comes in based on the rate at which it goes out. Having more income than expenses doesn’t necessarily mean you have good cash flow, especially if your expenses are due before they’re paid. Improving your cash flow usually involves one or more of the following tasks:
- Increase your income with a better job or a second job.
- Reduce your spending by limiting additional spending or canceling unnecessary subscriptions.
- Coordinate your spending with your payroll.
If you don’t know where to start, set a budget for your monthly expenses and see how you can adjust it.
Increase Your Savings
Everyone needs savings sometimes. Without the safety cushion of available funds, something as simple as a flat tire can lead to increased expenses. Ideally, people should have three to six months of expenses in savings available for emergencies. If you’re just starting out, try to save a little from each paycheck. If you can save 10-20% on your salary, it can add up quickly. In your next emergency, you can use your savings instead of going into debt or falling behind on bills.
Automate Your Financial Transactions
In a world of automated systems, there is almost no reason for you to manually pay bills or put money into savings or investments. Set up automatic billing for utilities and other regular expenses so you never miss a payment. Your banking institution may allow automatic withdrawals from your savings accounts when you get paid. With this system, all you must do is track the money in your account and manually pay for one-time expenses like car repairs. The bonus is that your savings will grow without you even realizing the money is gone.
Be Picky About Your Debt
When you have access to credit, it’s important to be careful with it. It’s easy to struggle financially with too much debt relative to your income. Focus your loan applications on things you really need or that will help you achieve your financial goals. Borrowing money to buy a home or to have a reliable vehicle for work can be a good use of debt. In comparison, putting regular expenses on a credit card to increase cash flow can cause problems.
Building wealth is a lifelong process. Even if you don’t feel like an expert right now, you can still learn a lot and discover new ways to achieve your financial plans. Once you have significant savings or you are ready to start diversifying your investments, it’s a good idea to consult with a financial planning advisor. Financial advisors can evaluate your income and available funds for investment and help you devise a plan that will work best for your retirement goals and other long-term financial intentions.
Building wealth isn’t just for the rich. If you have extra income, you can use it to improve your cash flow, build savings, and invest in your long-term financial health. Check out the accompanying material for more ideas on the keys to success in building wealth.
Infographic provided by Skyline Advisors, financial planning services