Thinking about the future and where you want to be with your personal finances can be frustrating, especially if you are uncertain about the next steps. No matter where you are in life, the key to growing your money is having a financial plan.
Whether you are saving for a new car, a new home, higher education, starting a family or retirement, you can learn how to set the foundation for your financial growth. In this blog, we will explore how to build wealth at any life stage.
What It Means to Build Wealth
Building wealth goes beyond having money saved or owning expensive things. It is about having an investment plan that will allow you to generate sustainable wealth throughout your life. It all starts with having a clear understanding of how to invest, maintain assets and manage debt, according to Investopedia.com.
Developing a successful investment plan takes time, effort, discipline and information. Here are some basic steps that can help you get started:
- Set Goals: Building wealth requires the individual to set realistic goals. Think about what is most important to you financially. Ask yourself what you will be using your wealth for, how much you will need and how soon you will need it. These goals may be to buy a home, pay for college tuition, consolidate debt or create more retirement income.
- Earn Money: As obvious as it sounds, earning money is essential in your quest to build wealth. There are two main ways to generate money: earned income and passive income. Earned income is money made through work at a steady job. Passive income is made through investing money. Having a passive income first requires having money and/or property that can be used for investments, dividend payouts, renting out a home, etc.
- Save Money: Building wealth can also be done by saving money regularly. Set aside a portion of your earned income in a savings account that pays interest and you can slowly build your wealth. Develop a strong savings habit by paying yourself first as part of your monthly budget. Deposit your funds in a high-yield savings account or similar product, such as a Certificate or Money Market Account. These products will allow you to earn higher returns on your savings. Note that certificates usually require your money to remain in the account until the term of the certificate expires.
- Build Credit & Manage Debt: Building wealth also includes building a healthy credit score and having minimal debt. Your credit and credit score determine whether your loan will be approved and what interest rate you will receive from lenders when you borrow money for a car, home or personal reasons, or when you get a credit card. Generally, the higher the credit score, the better rate you will receive for the loan.
To establish and keep a high credit score requires that you pay your bills on time, maintain a good debt-to-income ratio and actively review your credit score so you can address any issues that come up in your credit report before you apply for the loan.
- Invest: Investment is the main way to accumulate wealth because it provides a better return on your money. The first thing to know is that there are some risks associated with investing, especially with the stock market. Consider your life stage as well as how much risk you are willing to take with your money in the stock market. Younger people can afford to take more risks because they can regain any potential losses over time. If you are close to retirement age, however, you might be better off with a more conservative approach because a large loss of funds could negatively impact your retirement plans.
Wealth-Building at Each Life Stage
Building wealth is possible at any age. According to Forbes Advisor, your 20s are the ideal time to start. During this young adult period, your financial responsibility is much lower. While your income may be lower than older adults, you have more time on your side if you start saving regularly. Also, you can quickly improve your credit score during these years by ensuring on-time monthly payments and paying off debt completely.
When your 30s arrive, use this time to take stock of your finances and make adjustments as needed to stay within reach of your financial goals. Such changes include improving your credit score, consolidating bills to pay off debt, increasing your savings and spending more wisely. The more you lean into your financial plan, the better position you will be to reach your goals.
This same philosophy applies when you are in your 40s. By this time, the challenge may be prioritizing your financial plan against other demands on your money for raising a family, buying a new home or settling into your dream job.
Building wealth in your 50s can seem more intimidating but it is possible. According to Forbes Advisor, it is never too late to start. Since your income may be higher than during your earlier adult years, you may be able to save more and catch up with your goals. Just as in earlier stages, evaluate your financial situation to get an idea of where your finances stand. Then, focus on the changes that allow you to increase your wealth.
Remember that growing your money may look significantly different during each decade of your life. What you prioritized in your early 20s may be completely different in your 50s, so develop a plan that fits your life stage. The key is to focus on the long-term sustainable growth of your money.
How Younger Generations Are Affected
In today’s society, the younger generations are struggling with the financial stress that social media has placed on them. According to research, the pressures of seeing social media influencers living lavish lifestyles has caused them to develop “money dysmorphia,” which is a feeling of financial insecurity induced by their social media feeds, according to EMARKETER.
The two main generations being affected by this are Generation Z and Millennials, with about 43% of Gen Z and 41% of Millennials experiencing this stress. Social media content consumed by these groups has created misconceptions (and unrealistic comparisons) about financial health and wellness. The way to change this perception is to get educated in personal finances early in life to gain the skills and confidence to be a good money manager.
You Don’t Have to Go It Alone
Travis Credit Union’s focus is helping people achieve their goals through financial education, value-focused products and excellent services. TCU is here for the financial wellness of our members, neighbors and communities. Visit our Financial Wellness Hub and learn how to plan, save, spend and borrow to help you on your wealth-building journey.