2 Useful Tips on How to Build Wealth for a Secured Future
If you want to build your wealth then it will be necessary to put in the efforts and take help of a financial planner so as to move in the right direction and avoid common mistakes people make. Let us look at few of the things you can do to improve your financial position and your net worth.
Tips on How to Build Wealth
Tip #1: Save Increments/Raises You Get
It is a fact that as income increases, the spending rises as well and in addition to it, many people spend a large percentage (almost 85%) of their take-home income. It also tells us that people getting an increment increase their expenditure until the time funds going out match money coming in. Most of the time, the rise in expenditure is related to purchase of big-ticket things such as homes and cars, known as illiquid assets that have associated loans that you have to continue for a long term.
Thus, if you are able to avoid these expenditures related to changes in lifestyle then you will have more money to save. You will have to consult a financial planner to know ways you can avoid these expenses and save more. One of the easy things to do will be to save the increments you get. Let us go through the details here.
Let us suppose, a thirty-year-old person has an annual income of $60,000. If the person gets an annual increment of 3% then his salary will move up to more than $69,000 by the time he reaches the age of 35.
In case, this additional annual income of $9,000 is invested in a 401(k) that earns eight percent from the age of 35 till 65 then he will end up with a large nest egg.
To accomplish this task what you will have to do is ensure automatic transfer of extra income you earn from increment into 401(K) directly from your account. This way you will never have this money on hand to spend on anything.
Tip #2: Stop Interest Payment on Depreciating Assets
Debt can cost you dearly and make a serious dent in your savings. However, debts like student loan and mortgage are considered good debts since with education you are able to increase your earning capacity while real estate moves up in value with time. However, other debts like interest on credit card and car loans are not considered good debts. This is due to the fact that as soon as you purchase something (such as a car), it starts depreciating in value.
The right thing to do here will be to consult a financial planner to know ways how these expenditures can be stopped. One thing you can do is stop buying a new car on a frequent basis so that you can live a life free of car loans.
In addition to it, you should also try to pay off the dues in your credit card and start saving the money you were paying as interest on the credit card.
To conclude we will say that with thoughtful planning you will be able to save more and build up wealth for a secured future.