Updated: Jun 3
"It's a question we all have, how to increase our net worth quickly and easily. In most cases, people will look to cutting expenses and paying off debt, however, the key ingredient to truly build wealth and your overall net worth is to invest your money."
By Allan R. Kirby
Getting started with Building Wealth
It's a great question that I have been asked on many occasions, "How can I build wealth and stop struggling." There are many cases where people can achieve wealth in a relatively short period of time but for most of us, it will take time and dedication to build wealth and have enough to retire comfortably.
So to get started there is a simple framework ecompasing three principle ideas for building wealth but you need to follow through to succeed. Basically it entails;
Getting your finances in order by controlling expenses and reducing debt.
Saving as much as possible and building a budget.
Investing your savings and watching your money grow!
Now Investing can take many forms such as purchasing a home as well as other traditional investments such as; stocks, bonds, precious metals, and possibly even cryptocurrencies at some point. Additionally, if you want to build wealth quickly you also need to look at ways to improve your income, such as taking a second job by joining the gig economy or securing a higher paying job and even promotion. The point is to improve you net worth and build wealth you do need to keep expenses low and have as much disposable income as possible to invest.
What is the fastest way to build wealth? Cutting debt, reducing spending, saving as much money as you can then putting that money to work by investing.
Idea #1 Getting your finances in order
Yes, that is correct, getting your finances in order is part of the framework for building wealth. Spending all your money, keeping large balances on high-interest credit cards and no savings will not help you build wealth. It's a reality that you need to face because having no money simply means you will have a very difficult time building wealth for yourself.
Controlling expenses and reducing debt
Cutting spending will help control your expenses and keep you out of debt and it is the first thing you need to do because it will have an immediate impact on your finances. This is not easy but you do need to really look at the things you buy each week and determine what you should spend money on. Looking for sales and buying at discount stores, maybe spending less on restaurants and even buying an affordable car instead of a luxury care can help you save significantly over time. Best part is it helps you stay out of debt and gives you more room to save your money. As a good example I recently bought an SUV for only $20,000 and it was one year old, A new SUV was just over $35,000. I saved just over $15,000 and to me that is significant for my finances because I have less debt and more money to put into my savings. Keep in mind, this may not be easy for some of you, but cutting back is a necessity in controlling expenses, or at least slowing down the spending will get you on a better footing.
Try budgeting as a way to help you control your expenses and allow you to focus on paying down debt.
No more high-interest debt!
In addition to controlling spending, you also need to get rid of all those high-interest debts if you have any, high-interest debt will always squeeze your money as your income will need to go towards servicing the debt. This is not easy for some who may be struggling but it's a fact that you need to reduce your debt to help you build the savings required for investing which will help you improve your networth and build wealth.
Idea #3 Saving as much money as possible
You need money to make money, that's what I learned when I was a kid and I never forgot that lesson. Even in university, I saved as much money as I could, but admittingly it was not much. But I did learn the valuable habit of saving a percentage of my income regularly which helped me through my adulthood. Saving money is a key to successful wealth building because having the money allowed me to buy a home and invest in the stock market. I learned to power save during certain times of the year, such as my income tax returns. When I received money from the government, I would put it into savings or made extra payments to my mortgage. The key ingredients I think of building wealth, is eliminating debt, and saving money.
Learn to Budget
One way to help you with your expenses, debt and savings is to try and build a simple budget and stick to that budget. This is what I did when I was younger, I learned how to budget by simply using excel. I never tried to do anything complex or time consuming, I kept it simple and easy to follow and it worked. Through budgeting I learned how to squeeze more into my savings account so I could invest the money. Budgeting is another key part of helping you improve your net worth and building wealth.
Try automatic savings on the day you get paid. It's a great way to save seemlessly.
idea #3 You need to Invest!
The problem with saving money and cutting expenses is that it will only get you so far especially in a low rate environment. But one way you can build wealth that is low cost and a low barrier to entry is through investing in the stock market. It’s one of the few avenues available for most people to build wealth without requiring a substantial amount of capital or experience.
It's important to try and invest some money
Look, we all have circumstances that are unique and different from everyone else, so the ability to commit to investing and the amount of money available to invest can be challenging. However, regardless of where you are at in life, Investing to improve your net worth and build wealth is something you seriously need to look into. I fully understand that you may feel overwhelmed and uncomfortable because you’re not an investment guru but that’s ok. This is because newer low-cost trading platforms coupled with inexpensive exchange-traded funds (ETFs) allow people with little money the ability to participate in stocks. Some of the benefits of investing in ETF's include:
1. ETFs are a great way to invest in a sector or index for both professionals and novice investors alike.
2. Eliminates single stock risks.
3. Allows you to be diversified.
4. Expense fees to run the ETF are very low.
5. It's easy to buy and sell ETF's.
6. Great investment for the more passive investor.
You do not need to be an expert to invest using ETFs and with their low cost, you can invest your money without getting hit with high fees and low returns. But by not investing your money, you are losing out on building your wealth over the long term and missing out on improving your net worth.
Can I buy stocks with only a small amount of money? Yes, there are many trading platforms that allow you to invest small amounts of money with no minimum balances, no fees and you can even buy fractional shares.
As I have mentioned in the article the framework to improving net worth and building wealth can be broken down into three principal ideas:
Eliminating debt and controlling your expense.
Budgeting and saving money.
Investing your savings.
One of the best ways to invest your money is buying a home as well as investing in the stock market. However, a surprisingly high number of Americans do not participate in the stock market, thus losing out on an opportunity to build wealth which increases net worth. In fact, the share of adults investing money in the stock market in the United States from 1999 to 2020 has actually gone down, as shown by Statista, Basically, millions have been left out of the massive stock market appreciation since the crash of 2008–2009. This is not a surprise as many lost out big with the crash but would have recovered and even be well ahead had they stayed in.
Being frugal, keeping expenses low, and ensuring you do not have high debt and saving will allow you to wealth and thus improve your net worth over the longer term. You may not become super rich but you will end up being able to live comfortably into retirement.
This is a MySmallBank.com blog written by Allan Kirby, who writes and produces Personal Finance and Money Management articles and videos.