5 Ways To Build Your Wealth in 2020
For some people, the phrase "building wealth” is a lifestyle. It’s something they’re born into or that just comes so naturally they’ve been building wealth for years. For others, it’s a phrase that evokes feelings of frustration, desperation and possibly even outright rage. The latter people work hard. They’re good people. They buy within their means. Yet they continue to live paycheck to paycheck, and no matter what they do, they cannot seem to get ahead. Does this sound familiar?
If you’re one of the millions of Canadians who are just "getting by,” you may roll your eyes when people ask you what you’re doing to "build your wealth.” What wealth, you may ask? Before you click away thinking this is just going to be another article that advises you to invest money you don’t have, hear us out.
Building wealth isn’t about having an extra thousand dollars lying around to splurge on a European vacation. It’s not about transforming from an Average Joe into a multimillionaire. Building wealth is about the rest of your life, and about building a strong financial foundation that will ensure your comfort into retirement. THAT is something the average working person — including you — can do.
So, how do you get started? It’s not as hard as you might think.
1. Create a Budget
There’s another term that evokes feelings of frustration and desperation: "budget.” A budget may sound scary (or, if you’re like many consumers, boring), but the reality is that you need to know what is coming in and what is going out so that you can begin to save. Once you figure those two figures out, it’s time to start budgeting.
Begin with the easy stuff, such as your fixed monthly payments. Think rent, mortgage, phone payments, utility bills, health insurance costs and the like. Then move onto the variable costs. Those include bar tabs, coffee costs, grocery bills, entertainment expenses and eating out incidentals. The latter type of expenses are those you can trim. A good rule of thumb to live by is the 50/30/20 rule: Set aside 50% of your earnings for recurring, fixed expenses, 30% on variable expenses and 20% towards savings and investments.
2. Pay Down Debt
Debt hinders wealth, end of story. Not only does it inflate the longer it remains unpaid, but also it ruins your credit, eats away at your gains and throws off your budget. If you have debt, paying it down should be your ultimate financial priority. To make sure you don’t miss payments, factor debt payments into your monthly budget. As you pay off outstanding balances, use the money you would have put toward that debt toward another debt.
Pro tip: Pay off high-interest debts first, and, whenever possible, pay more than the monthly minimum. This can help you avoid paying hundreds to thousands of dollars in interest each year.
3. Reduce Your Living Expenses Where Possible
Trimming your variable expenses is the easiest way to protect and build your wealth, but it’s not the only way. Once you start trimming your variable costs, start looking at ways you can reduce your overall cost of living. Can you downsize to a more affordable neighborhood? Can you lower your electric bill by using a programmable thermostat, taking shorter showers, fixing leaky faucets or using energy-efficient appliances? Do you really need a Netflix, Amazon Prime and Hulu account? Though individually, the savings may seem minimal, they will really add up over time.
4. Look for Investment Opportunities
While it may seem painful to invest with your newly acquired savings, think of your investments as a payment toward your future self. By placing your money into a long-term investment account, it will continue to earn for you. The same is not true of money that just sits in a savings account.
You don’t need a lot of money to begin investing. There are hundreds of accounts and opportunities available that come with low startup fees and barriers of entry. In fact, some of the best interest-accruing accounts allow you to get started with a deposit of just $1.
5. Negotiate a Raise or Look for a Better Job
At the end of the day, the problem may not be your lifestyle or your spending habits but rather your salary. If you simply do not make enough money to afford even the most minimal of lifestyles much less build your wealth, you’re doing yourself a disservice.
Before you change jobs, do some homework. Look online to see what others in your line of work with your level of experience make. If it’s more than what you currently make, write down a list of your achievements and approach your boss with a request for a raise. Hold firm during negotiations. If you walk away feeling dissatisfied with the outcome, then it may be time to look for a new source of income.
You don’t need wealth, or even to make a lot of money, to build wealth. Follow the advice above to begin building a solid financial foundation on which you can happily retire.