How would your life be different if you were no longer worried about money? Maybe you’d sleep better and have less anxiety. Perhaps you’d be able to put those monthly money fights with your spouse to rest. More importantly, you’ll be able to create a better financial future for your family.
If that sounds like a dream to you, I’ve got great news. You can create a life free from financial worry no matter where you are right now.
My husband Jer and I started with nothing and created financial freedom before we turned 40. There’s nothing special about us. We didn’t come from wealthy families. We just decided that we wanted our lives to be different and made it happen. If we can do it, you can too.
Welcome to Step Five in my series on creating financial freedom. Earlier this year I launched this series with the First Step – figuring out where your money is going. I followed that up with the Second Step – taking control by creating a budget. In the Third Step, I shared a lot of awesome information about saving. And Step Four was all about paying off debt. Which leads us to Step Five – building wealth.
Why Build Wealth?
I feel like there’s an underlying belief in our culture that money is evil. We’ve all heard phrases like, money is the root of all evil and Mo Money Mo Problems. But money itself is amoral. It’s a tool that good people can use to create more good in this world.Money is amoral – good people will use it to create more good. Click To Tweet
By building wealth for you and your family, you’ll create more wealth and abundance in this world. You start with your own family by passing your wisdom and habits down to the next generations. Then you extend your reach by giving generously to causes that are important to you. And some of you will start businesses and help your vendors and employees build wealth for their own families. Abundance is contagious.
Money isn’t the end all be all. And money doesn’t guarantee happiness. But you can’t argue that a good person can do more good with money than without.
What is Wealth?
A high income does not guarantee wealth. There are plenty of people earning $250,000 per year who have nothing to show for it. Neither do fancy homes and cars indicate wealth. In fact, according to Thomas Stanley, author of The Millionaire Next Door, most millionaires don’t drive Maseratis and live in mansions.
I define wealth by net worth – what you own minus what you owe. For example, you might own a home worth $250,000, two cars worth $30,000, retirement accounts worth $100,000, and an emergency fund of $10,000. The value of what is owned is $390,000 – not bad.
Let’s say the balance on the mortgage of that aforementioned home is $200,000. Then there’s $20,000 owed on the cars, plus $40,000 in student loan debt, and $10,000 on the credit card from that European vacation. That’s $270,000 that is owed, making your net worth in this scenario $120,000.
Just like there’s no amount of exercise can compensate for a poor diet, you can’t out earn bad spending habits. No matter how much money you earn, you can create wealth by owning more and owing less.You can’t out earn bad spending habits. Click To Tweet
How to Build Wealth
I don’t consider myself an expert investor and we’re not actual billionaires (yet). That said, I’m happy with where we are and our average return on our investments. Like most people, we’ve made some mistakes, but we learned so much along the way. We truly built something from nothing.
Had I known then what I know now, I would have started saving and investing earlier. I also would have spent less and saved more.
While we started saving as soon as we had real jobs, we only focused on retirement savings. I would still invest in retirement accounts for all of the reasons I outlined in Step 3. But I also would have invested more outside of that. Our lives would be very different right now had we matched our retirement savings with non-retirement investments.
But we can’t change the past. And the lessons we remember are the lessons we learned the hard way. So we take what we’ve learned and apply it with gusto and share our lessons with the next generation. Here are the nine most important things we’ve learned about building wealth.
9 Ways to Build Lasting Wealth
1 – Get your mindset in check.
The way we think and feel about money affects how we deal with money. You will never build wealth if you believe that money is the root of all evil. If you have a scarcity mentality and believe that someone gaining wealth means that someone loses, you can’t have a healthy relationship with money.
To varying degrees, both Jer and I had to create a wealth-building mindset. That meant learning to think long-term. That also meant learning to believe that we deserve to be wealthy and that wealth is good. And in learning to be generous we learned that generosity attracts generosity and wealth.
2 – Know your what and your why.
I’ve been budgeting and diligently tracking our expenses since 2011. I have a pretty good idea how much we need to live our current lifestyle. And based on history, I can predict how much we’ll need in the future.
Equally, if not more, important is understanding your why. Why is it important that you sacrifice today for a better future tomorrow? Maybe you want to ensure that your children don’t have to struggle the way you did. Or perhaps you want to leave a legacy by supporting a cause that’s near to your heart. You might simply want to reduce the stress in your life and your marriage. Whatever it is, figure it out and keep it top of mind.
3 – Stick to a budget.
As I said in Step 2, whether you make $30,000 or $300,000, you need a budget. The less you spend on wants and impulse purchases, the more you can use to build wealth.Whether you make $30,000 or $300,000, you need a budget. Click To Tweet
4 – Invest your money.
Use your money to make money. You could invest in stocks or mutual funds. Be sure to check out the benefits of investing in retirement accounts that I covered in Part 3. As I mentioned earlier, you may want to consider investing in stocks and funds outside of your retirement account.
Real Estate is another great way to invest. And I’m not talking about your home here. I’m talking about income generating properties such as rentals properties, vacation rentals such as Airbnb, farm land, or commercial spaces.
I’m not an investment professional, but I have two important pieces of advice I’d like to share.
The first is buy low and sell high. I’ve been in the game for close to 20 years and I’ve seen plenty of ups and downs. Trying to time the market is impossible, so I just consistently invest money each year. Where I see people get in trouble is the frenzy of bubbles.
I was in college during the dot-com bubble and I recall many of my classmates taking out student loans and cash advances to buy stocks. We all know what happened there. Then there was the real estate bubble of the mid-2000s of which many of my peers are still recovering. Be cautious when everyone is in a panic to buy.
Which leads to my second piece of advice. Avoid the bubble frenzy by playing the long game. Every time the aforementioned bubbles burst, people panic and sell off, walking away with huge losses. Instead, I buy investments with the intent to play the long game and hold on indefinitely.
5 – Invest in yourself.
One of the best ways to build wealth is to increase your income. One of the best ways to increase your income is to invest in yourself. This does not mean you should take out $100,000 in student loans to get a master’s degree in underwater basket weaving.
Invest in things that have a good return on investment. This could be anything from formal education to self-education. It could include books, seminars, conferences, online courses, or coaching.
It doesn’t have to cost a fortune either. The library offers a plethora or free resources. Or you could apprentice or take a community education class. A great place to start might be educating yourself on investing and building wealth.
6 – Build a business or side hustle.
Here’s another thing I wish we would have started earlier in life. There are so many great reasons to start a business or side hustle. Small businesses are great ways to increase your income and create more freedom and security in your life.
Then there are the tax benefits! Although his name sparks controversy, I like the way Robert Kiyosaki explains this in his book Rich Dad Poor Dad. He uses the CASHFLOW Quadrant to show how the tax laws in the US make it more challenging for employees to get rich. While investors are able to make their money and taxes work for them.
If you’re thinking about starting a business or side hustle, I love the book The $100 Startup by Chris Guillebeau. He also has a podcast called Side Hustle School with lots of great lessons and ideas.
7 – Get professional help.
When it comes to taxes and investing, seek the help of a professional with a proven track record. You wouldn’t take diet advice from an overweight man, but I constantly see people taking financial advice from other broke people. Talk is cheap so when you interview financial advisors, I recommend asking to see their personal portfolio.
8 – Pay attention.
Review your monthly and annual statements. I’ve taken it a step further and have been tracking every account monthly in an excel grid since 2012. It only takes a few minute each month and helps me to identify issues that might need further review. I shared a story in Step 3 about how we discovered and handled high fees with a retirement plan provider.
This is your future. Take a few minutes each month to stay on top of it and don’t be afraid to change what isn’t working.
9 – Find balance.
Go all in, but don’t forget to live your life. When we decided to pay off our mortgage, we cut everything we could so that we could knock it out as quickly as possible. It took two and a half years. And while we weren’t going out to dinner and brunch every weekend, we did manage to take a nice long trip to Greece.
I don’t need to tell you that any day could be your last. Aim to find a healthy balance between enjoying your life today while building a solid foundation for your future. The good news is that you don’t need to spend a lot of money to live a good life.Find a healthy balance between enjoying today while building a foundation for your future. Click To Tweet
Stop waiting to create financial freedom. You owe it to yourself to make your hard-earned income work for you. Whichever step you’re on, I challenge you to pick one small step and take action today. The sacrifices you make today will change your family’s future forever.
This isn’t the end. If you’ve been enjoying this series, be sure and sign up for my weekly email. I’ve been spacing the posts a few weeks apart to allow my readers time to take action. Coming up you can expect to learn about how to get your significant other on board, paying cash for large purchases, and how to cut expenses without feeling broke.
Ready to change your financial future?
Check out these posts to learn everything you need to know to go from surviving to thriving.
Step One – Figure Out Where Your Money Is Going
Step Two – Creating a Budget That Works For You
Step Three – Saving For Financial Freedom
Step Four – Ditch Your Debt
Step Five – Build Wealth on Any Income
Step Six – Achieving Your Goals As A Couple
How would building wealth change your family’s future?
Share in the comments below!