If you’re not someone who has inherited major family assets, becoming rich can seem like a major challenge, or even the challenge of a lifetime. This is especially true for younger Americans who are often struggling with high student loan balances and rising costs of living.
But as long as you’re willing to make changes to how you handle money, you can still build wealth at any age, even if at a slow pace. Here are six ways you can work toward getting rich without generational wealth.
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1. Have a Financial Plan
Before going further, identify your financial goals. Think about how much money you need to save before considering yourself rich. Additionally, reflect on your reasons for becoming wealthy, so that you have a focused motivation. Perhaps you dream of a comfortable or early retirement or you want to leave your family a hefty inheritance.
Next, look at your current finances to see what could hinder you from becoming rich. You should have a budget showing where your money is going and how much income is regularly available for wealth building. You’ll also want to inventory your assets and debts and figure out your current net worth.
2. Create a Safety Net
If you want to get wealthy, you should have an emergency fund to cover unexpected costs that could otherwise leave you seeking high-interest credit options. Put at least three months of expenses in a savings account with easy access and a competitive interest rate. That way, you can withdraw funds for emergencies such as car repairs and doctor bills.
You should also prepare for costly illnesses, accidents and other events that could potentially wipe out your savings. This involves making sure you have the right types of insurance policies with sufficient limits to protect your wealth. Just shop around to find reasonable premiums and minimize the impact on your monthly budget.
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3. Get Out of Debt
Having debt not only lowers your net worth but also steals your monthly income until it’s paid off. These debt payments are money that you can’t invest for a solid return. Instead, you’re paying your creditors interest, which can significantly increase the total amount paid.
Whether you can pay off full balances or just boost your monthly payments, target your debt immediately. To save money, put your extra funds toward high-interest debts before you move on to those with lower rates. Once your debt is gone, that cash can go toward smart investments that help you get rich.
4. Earn More Money
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Your current income can hurt your chances of becoming rich, especially if you don’t have much to save after you cover monthly bills. It could be a good time to try for that promotion you’ve been eyeing for a while or renegotiate your pay with your boss. In other cases, you might decide it’s time for a more profitable career choice or at least a new employer.
Consider going even further by diversifying your income. Rather than only earning from your full-time job, decide whether a part-time side gig makes sense. You can also think about passive options, such as renting out your stuff.
5. Aggressively Cut Expenses
The less cash you spend, the more you can put toward building wealth. Try checking your budget for expenses you can cut aggressively. Changes could include no longer eating out at restaurants, skipping lavish vacations, getting rid of the extra car or downsizing your housing.
Once you aggressively cut costs, make sure you’re using the saved cash to pay off any debts and invest. You should also frequently monitor your savings goal and cut costs further if you’re not making enough progress.
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6. Invest Money Wisely
Invest as soon as possible and don’t just keep money in low-interest bank accounts. Tax-advantaged retirement accounts, which have varying contribution limits, are a good place to start. You could use your job’s 401(k) account alongside an individual retirement account (IRA). You can also consider options such as savings bonds, certificates of deposit and brokerage accounts.
Investing your money wisely will require diversification. Avoid investing too much in one thing since losses could really hurt you. You should also have the right portfolio allocation that fits your risk tolerance, preferred return and time horizon. You can discuss your wealth goal with a professional advisor and get investment advice.
