How many of you are hoping for a hot tip, a way to get in early on the next big investment boom, a portfolio that will earn you 20% per year guaranteed, a way to double your income without working more?
Sorry, I don’t have any of those. Come to think of it, they don’t exist! Creating wealth is all about discipline. If you want to build wealth, here is what you need to do, in order of importance:
- Live within your means. If there isn’t enough in your checking account to buy something, don’t buy it.
- Establish an emergency savings account. An emergency savings account is an account which contains enough money to cover your living expenses for 3-6 months (preferably 6). You can do this by opening an additional account at your bank: do NOT use your checking account, because what we see, we spend! If it gets depleted in an emergency, build it back up.
- Save. Contribute to some type of retirement plan. 401(k)/403(b) is great if it’s available to you. If you don’t have those options at work, you can establish an IRA or Roth IRA. Even a non-working spouse can establish an IRA, so if you don’t have retirement savings, contact us today to set that up.
- Have a Plan. I could give generic savings guidelines, but they would be just that: generic. Everyone should have a financial plan that is tailored to their own circumstances and goals. You are never too young to start planning. Save with purpose.
- Invest wisely. Your assets should be invested in a diversified portfolio that is appropriate for your age and circumstances. The trick is to spread your money across many different types of investments to reduce the level of risk and generate a respectable return. Look for a professionally designed portfolio from your advisor, your retirement plan counselor, or an investment company’s websites.
- Stay disciplined. Don’t make emotional mistakes. Just because your friend/ family member/ neighbor invested a certain way or bought a stock or sold a stock at a certain time doesn’t mean that’s the right thing for you to do. Stick to your plan and your portfolio.
That’s it, folks! You don’t need to make extravagant amounts of money to create wealth. Some of our wealthiest clients have built their nest eggs on very average incomes. Start building your wealth today by making a plan, staying focused, and saving.