If you’re in the middle class, you’re probably feeling pretty good about your financial health. You can pay all the bills and still have something left over for saving — or splurging. Maybe you own a home or are thinking about buying one soon.
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Still, being comfortable now doesn’t mean that you’re ready for the future. Retirement, college tuition and who knows what else are on the horizon, and you’ll need to have a plan to afford it all.
While you may not have access to all the strategies that the rich use to safeguard and grow their wealth, there’s still a wide range of possible steps you can use to build up your net worth — even over a shorter time frame. Here are five ways experts say the middle class can build their wealth over the next five years.
High-Yield Savings Accounts
Traditionally savings accounts have not been considered a good way to build wealth. That’s because interest rates were so low — but that’s not the case anymore, and many financial institutions are now offering attractive interest rates to entice customers to bank with them. Rates may go down in the future, but if so, that will very likely happen slowly, making now a great time to take advantage of higher yields.
“We haven’t seen interest rates 4% or higher since the early 2000s,” said Walli Miller, financial coach and the founder of Financially Thriving. “A high-yield savings account is a great way to park your money if you are going to need access to it in the short term. Keeping money in a high-yield savings account at an FDIC financial institution provides the most flexibility.”
Paying Off Debt
Debt drags down your wealth in more ways than one. Debt can be thought of as a liability on your personal balance sheet — it decreases your total net worth. To be fair, this might not be a problem if the debt was used to purchase a valuable asset like real estate, but it’s definitely true of unsecured forms of debt, like credit cards.
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Debt also reduces your ability to save. It may seem obvious to say, but the money you’re spending on debt payments could be money saved instead. That’s a double whammy, because you’re not just missing out on saving, you’re also missing out on the investment returns that money would be getting.
The longer you carry debt, the worse it is, because you’ll pay more in interest on the total life of that debt.
“Paying down debt, particularly high-interest debt, is a great way to increase your net worth. Learn to be in the habit of earning interest instead of paying interest,” Miller said.
Get Into the Stock Market
Saving is really only one part of building wealth — just as important is getting a return on the money you’ve saved. While interest is one way to do that, you should also be diversifying your investments across a number of different asset classes. While investing in the stock market does carry more risk than, say, a high-yield savings account, historically, the returns of stocks have been significantly higher.
“Year to date in 2023, the stock market is up over 20%. While we should not expect returns like this every year, investing in the stock market is a great wealth-builder over time,” Miller said. “Investing in low-cost index funds is a simple way to build wealth.”
Index funds are investment vehicles that simply replicate the broader stock market. They’re a great way to get exposure to a diverse stock portfolio.
Automate Your Saving
One of the easiest ways to build wealth is by saving automatically. Countless studies have shown that those who automate saving tend to save more money than those who do it manually. This is because it takes the decision out of your hands — removing the temptation to save a little less and spend a little more.
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David Delisle, financial author and founder of The Awesome Stuff, emphasized the importance of automation: “Because most of us will spend that money and not even realize where we spent it. And I promise you, if you begin saving first, you will automatically adjust to the new amount of money you have to spend in the same way that you adjusted your spending upwards when you received a raise and can no longer remember where all the money went,” Delisle said.
Most financial institutions allow you to make automatic deposits on a regular basis. If your employer offers a 401(k) plan, you can make deductions from every paycheck. You can even set up automatic increases in the amount you save.
Invest in Yourself
U.S. Bureau of Labor Statistics data shows that those with a college degree make, on average, $30,000 more per year than those with a high school diploma. The median earnings for those with an advanced degree is $13,000 more per year than those with a bachelor’s degree. That difference could add up to a serious wealth boost over five years.
You can also pursue certifications or bootcamps to acquire new skills that will increase your earning potential.
If going back to school isn’t practical for you, or you don’t want to spend the money, you can still invest in yourself through time and effort.
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“Foster relationships in your community by attending conferences, meetings, events and the like,” said Hector Castaneda, CPA and principal of Castaneda CPA & Associates. “You can build long-term and meaningful networks while contemporaneously gathering the needs of your community and filling the void with a business venture or even provide consulting to experts who service your community for a fee.”
