We’ve all heard the term “get rich quick.” In most cases, this is more of a dream than a reality. Shortcuts to accumulating wealth rarely pay off, unless you are lucky enough to win the lottery. A strong financial foundation has to be paved and maintained. Taking financial shortcuts may not get you where you want to be, but implementing some tried and true financial habits can get you one step closer to financial success.
1. Live Below Your Means
If you want to build your wealth quickly, you need to spend significantly less than you earn. While this may seem like obvious advice, for most Americans it’s a lesson they are preaching but not practicing. Only 55% of Americans are actually living within their means, according to a 2015 Pew Charitable Trust poll. Living frugally means spending your money on needs, not wants. Take a detailed look at the money flowing in and out. What are you spending your money on and what expenses can you reduce or completely eliminate? Start cutting back on unnecessary costs and monitor your spending every week. Eventually, spending less will become second nature.
The best way to monitor your cash flow and keep yourself accountable is to create a budget and stick to it. A budget helps you establish parameters for operating your household, understand if your goals are achievable in your desired timeframe, and even contribute to reducing stress in the event of an unexpected incident, such as the loss of a job or an injury.
2. Set Big Goals Alongside Small Milestones
Don’t be afraid to dream big financially. What if you could save $100,000 in the next five years? Having a lofty goal in mind can provide you with the motivation to stay on track. But as most of us know, it’s easy to get discouraged when waiting to see progress. To avoid getting frustrated along the way, celebrate small milestones, such as reaching $5,000, $10,000, $25,000, and so on. Reevaluate your goal every year to ensure you’re on track and make adjustments as needed.
3. Save Early and Often
One of the most significant benefits of saving early and regularly is the power of compound interest. If given the choice, most people would choose to spend less money on achieving their goals so that they have more money to pursue their passions in life. Compound interest helps the money you put away grow faster due to interest building upon itself.
If you procrastinate and delay saving, you not only lose out on your money working for you, but you also make it harder on yourself. You’ll have less time on your side, so you will have to save more and may have to increase your tolerance for risk in order to achieve your goals.
4. Be Money Conscious
Avoid settling when it comes to bills and service payments. As you work toward your financial goals, find opportunities to speed up your savings. Are there any loans you can pay off faster or refinance? Can you forgo cable television or find a less expensive Internet provider? Are you using your gym membership enough to justify the price, or can you take advantage of the great outdoors instead?
Once or twice a year, review your subscriptions, memberships, and recurring bills. You may find subscriptions to magazines you no longer read or memberships to services you don’t need. You’d be surprised at how much you can save every month by cutting down on recurring services. Being money conscious doesn’t mean being stingy. It means you are aware of how hard you work for your money, are conscious of what things cost, and mindful of how your actions today will impact your future financial situation.
5. Avoid High Interest Debt Like the Plague
An important step in building your wealth is reducing your high interest debt. Many of us face some form of debt, whether it’s student loans, car payments, or a mortgage. Make a list of all of your debts, including loans and credit cards. Note the interest rates and balance for each loan. As you look at your list, compare the interest rates and balances. If you have a loan with a significantly higher interest rate than the others, you may want to work on paying off that one sooner than the others. Or, if you're feeling overwhelmed by debt, try paying off the loan with the smallest balance first, no matter the interest rate in order to gain some momentum. Along with paying off high interest debt, avoid accumulating additional debt. Stick to a minimum number of credit cards and, as shared earlier, spend on your needs, not wants.
6. Work with a Wealth Advisor
In fitness, having a workout partner can double your results. Having a partner holds you accountable and inspires you to push harder, even when the going gets tough. It’s easy to slack on adhering to your budget or slip up on following through on your goals when you don’t have someone holding you accountable. This is where a good financial advisor comes into play.
An advisor not only helps you stay on track, but can also provide knowledgeable advice, tips, and answers to your greatest financial questions, including:
Should I start investing or pay down debts?
How much risk should I take?
How much should I be contributing to my company’s 401(k) plan?
Do I need to be on a budget?
An advisor can help you determine how to establish a strategy based on your specific needs and circumstances. Find a financial advisor you trust to help you stay on track and provide advice when you need it.
Get Started Now
While it takes patience and time, you can you can work toward your goals by following a few helpful financial habits. At Beacon Wealth Management, our mission is to help you make smart decisions about your money and achieve financial confidence. As the trusted partner in your financial journey, we make financial success our priority. If you are looking for a partner to help you implement habits that will improve your finances, feel free to call me today at (304) 626-3900 or email me email@example.com to schedule a free 60 minute discovery consultation.