n44) The Ultimate Guide to Wealth Building - How to Make Your Money Work for You

 The Ultimate Guide to Wealth Building - How to Make Your Money Work for You

According to a study by Credit Loan, three in four Americans feel they are living paycheck to paycheck. While their sentiment may be attributed to several factors, many individuals lack the income to support their regular lives. The solution to this problem can be found through a combination of financial education and wealth building assets. Individuals who opt for the right planning and investments can supplement their primary income and work towards financial success.

The reason wealth assets are instrumental in achieving financial freedom is that they offer a chance to generate income from multiple, high-yielding sources. Read our guide to wealth building to learn about the right options for you.

What Is “Wealth-Building?”

Wealth building is the process of generating long-term income through multiple sources. This refers to more than job-based income and instead includes savings, investments, and any income-generating assets. The wealth building definition relies on proper financial planning and insight into one’s future financial goals. Many individuals will turn to wealth building as a way to secure a strong financial future.

The 3 Steps To Wealth-Building

To build wealth over time, you must follow three simple steps: make money, save money, and invest money. Before investing, it is essential to have a reliable income source that spans your long-term financial future. After a reliable source of income is assured, it is recommended to set a concrete savings plan. Finally, it is time to invest.

1: Making Money

This step may seem obvious, but it is essential to state that a constant source of reliable income over time is fundamental to wealth-building. A small amount of regular savings from this source of income can compound into a substantial amount. An important question to ask yourself is whether or not your current job can provide you with a regular amount of savings for 40 to 50 years. If not, it may be time to look for ways to increase your income.

The two basic types of income are earned and passive. Earned income comes from your regular occupation, while passive income comes from investments. To increase your earned income, you may first have to make changes in your occupation. If you’re considering a career change, ask yourself some questions to help you decide on your new job. For starters, what do you enjoy doing, and what skills are you naturally good at? Finding a job that aligns with areas in which you excel and duties that you enjoy will naturally allow you to perform better and start improving your income. Of course, you’ll also want to make sure that your chosen career will pay well. Consider investing in your education and other forms of training to help you become a stronger candidate for your desired job.

Once you find the proper financial stability, you can start saving and investing.

2: Saving Money

Many people live comfortably after finding financial stability, yet they still don’t save their money well. The second key to wealth-building is setting aside a portion of your earned income regularly. Once you have saved enough, you can start investing to grow passive income. Here are a few ways to to start saving money:

Keep track of your spending each month, and then crowd out the items, services, and experiences that you don’t actually need.

Adjust your budget as your experiment to the point in which you’re saving every month, but also aren’t depriving yourself to the point that life isn’t enjoyable.

Always have about 6 months’ worth of expenses saved in case of emergencies. Having a cushion will help prevent you from derailing your finances every time something unexpected happens.

Contribute to your retirement plan. If your employer offers a matching plan, definitely take advantage of it. Don’t leave free money on the table.

Set up automatic transfers in accordance with your pay days, setting aside an amount you usually plan to save. This will help you build the amount you can invest without even thinking about it.

3: Investing Money

Finally, once you have a stable foundation, you can start investing your money. However, to build a diverse investment portfolio, you will have to take a few risks. It is important to research how much asset allocation is appropriate for you. While you can do this research yourself, using a financial advisor is also recommended for new investors. They can help you gain clarity on your investment goals, time horizon, and how much risk you can stomach. Based on these insights, they can help you build a diversified portfolio that is risk-averse, moderate, or aggressive, based on your preferences.

Paying Off Debt Vs. Investment

The key to deciding whether to pay off debt or invest is by looking at your interest rates. Is the debt growing faster than your investment would? If yes, it makes sense to pay it down before investing. This is typically the case with credit card debt, which often charges well above the average interest rate for unpaid balances. After you’ve paid down these high-interest charges, then focus on how to grow your money through investments.

What Are The Best Wealth-Building Assets?

Traditionally, the best wealth building assets are real estate, private notes secured by real estate, stocks, and certain retirement accounts. This is because each of these assets has the potential to generate continuous cash flow. While other wealth building assets can provide returns for savvy investors, these are thought to be the most high-performing.

Other wealth building assets include bonds, CDs, mutual funds, annuities, and more. Timothy Woods, owner, director, and editor of Carnivore Style suggests that “the best wealth-building assets investors should own are stocks/equities as they have high historic returns. They are easy to own and trade are low in maintenance. Another best is Bonds as they have lower volatility. They are good for rebalancing and have safety in principle”. While certain wealth building assets are considered more high-yielding than others, each opportunity will come with some tradeoffs. Keep reading to learn more about the best wealth building assets as well as each strategy’s pros and cons.

Real Estate Investing

Real estate is perhaps one of the most well-known wealth-creating assets. Historically, real estate has proven to be a high-yielding investment for those who know what they are doing. According to a 2017 study, the average rate of return for real estate over a roughly 150 year period was around eight percent. The next closest performing asset was stocks, with an average rate of return around seven percent. Other wealth building assets, like bonds and CDs, averaged below three percent.

Real estate’s high performance results from several factors, ranging from the potential for monthly cash flow through rental income to the significant number of tax breaks available to investors. For those interested in getting started, generating wealth through real estate will require choosing the right exit strategy and property type.

Stocks Of Publicly Traded Companies

Publicly traded stocks are another well-known example of wealth assets. Stocks award investors the opportunity to buy shares in companies and earn profits. Stocks have proven to be a strong wealth building asset over time. As previously mentioned, according to a 2017 study, stocks were found to be a highly successful investment with the rate of return averaging around seven percent. Many investors find stocks to be a successful investment over time, though they can be unpredictable in the short term.

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