Wealth building isn’t about get-rich-quick schemes or chasing the trends in the stock market. Often, it just comes down to making the right financial decisions, big and small, over an extended period of time.
Recently, we came across an
Investopedia.com article from May 2019 entitled, “3 Simple Steps to Building Wealth.” We thought these steps were worth sharing. Sometimes, it can seem like the secret to wealth building is a mystery, when in fact it can be simpler than you think.
Don’t get us wrong – these steps are simple to understand, but they can be harder to execute. Still, they’re worth considering. According to the article, in order to build wealth over the course of your life, you need to do three things.
First, you need to Make it: You need to have a consistent source of income that allows you to have some left over after you’ve covered your necessities like housing, utilities, food and transportation.
Then, you need to Save it: Once those necessities are paid for, your next step is to have a proactive and consistent savings plan. This could include a 401(k) through your employer or another type of individual savings strategy.
Finally, you should Invest it: Once you have put aside that savings, it needs to work for you in an investment mix that matches your risk tolerance and long-term strategy.
Let’s dive into each of these three steps to wealth building a bit more in depth, starting with earning income. While earning income may seem like a no-brainer, it is still the most important step. Odds are that you have seen various charts and tables showing the value of compounding interest over time. What those tables and charts rarely show is what you need to be making to cover the necessities of your life. There is only so much you can save by cutting down on your expenses.
You will likely need to increase your income over time to allow for more opportunities to invest. One way to make sure that you are using new income for savings is to automatically increase your savings when you receive a raise or a bonus. You already know how to live on your current income, so don’t simply spend more because you have more.
Some 401(k) plans and individual retirement accounts will even provide you with the ability to automatically increase savings percentages on the schedule that you determine works for you. Are you paying off debt like a credit card or school loan? Schedule an increase for when that debt is paid off, thereby increasing your savings.
Speaking of savings, there are some more ways that you can avoid spending more than your income. Budgeting is an incredibly important and underrated tool to help you spend within your means and save what’s left over. Make sure you are looking at all of your monthly expenses and keeping excess and wasted expenditures to a minimum.
Finally, you need to find the right investment strategy and mix for your risk tolerance. At American Financial Security, LLC, we provide the Color of Money Risk Analysis and the Color of Money report. The first step is to color code your risk tolerance by answering the 11 questions of the Color of Money Risk Analysis. This analysis provides you with a financial picture and a roadmap to your overall risk preferences.
Building wealth can seem like a daunting task. But when you follow these three simple steps, you will find yourself on the right path. If you have any questions you’d like answered or would like to discuss your financial future, contact us today. QCBN
By Ronald Stevenson and Barbara Clark Stevenson
Ronald F. Stevenson & Barbara Clark Stevenson own American Financial Security, LLC and American Financial Investments, LLC. They specialize in Retirement Income Planning, Social Security Maximization, Tax Free Income Design, Personal & Corporate Tax Preparation and Planning. For more information, call 928-771-8368 or visit AFSprescott.com, 3112 Clearwater Dr., Suite B, Prescott, AZ 86305.
Ronald F. Stevenson offers Advisory services through American Financial Investments, LLC, a Registered Investment Advisor in Arizona. Insurance products and services are offered through American Financial Security, LLC. American Financial Investments, LLC and American Financial Security, LLC are affiliated companies.