Recently, I wrote a post about how to find more money to build your wealth. In the comments to that post, Ava Smith pointed out that you can’t build wealth by using only those strategies. She’s right. By themselves, those strategies will not build the wealth we seek.
To build wealth, we need to learn to grow our income. Finding ways to save money is merely the first step in an overall wealth building plan. We can use this money to pay off debt and begin saving torture future.
With the money found by eliminating wasted spending, we should build up an emergency fund of at least $1000. This should cover most minor emergencies, repairs, insurance deductibles that we might have to spend money on while we are taking care of other things. If any of thees do crop up, simply rebuild back to $1000 and continue with the plan. This money should be in a liquid account you can access at any time without any penalties, preferably in some sort of interest bearing account.
Once the emergency fund is in place, the next thing to do is to pay off debt. Last month, I discussed about the best way to get out of debt fast. The money that we have found by eliminating our waste can be the basis for speeding up this debt elimination.
When you are debt free (except for your mortgage), you should determine the minimum amount you need to get by. If you didn’t pay for anything extra, how much could you get by on? Once you’ve eliminated the debt, you’ll find that you don’t need as much money once thought you did. At a minimum, you’d still have your mortgage, any property taxes you might have to pay (if you pay this separate from your mortgage — or if you have your mortgage paid off), insurance (home, auto, and life), groceries, gas, water bill, electric bill, and phone service. Try to use a figure that would represent an average for the month for each of these.
After you have the minimum you need per month, multiply it by three and by six. This gives you the range you need to save to to have your nest egg, should you not have any income for a period of time of 3 to 6 months. For example, if you computed that you needed $1500 a month to cover your basic expenses, then you would want $4500-$9000. If you already have the $1000 emergency fund, simply grow this fund until you have that account in the range.
Grow Your Wealth
Now that you have your nest egg, you can start to build your wealth. At first, this money might go into a certificate of deposit (CD) account or other similar low interest return account. As the money grows, you can move some of it to a higher interest bearing account and other riskier methods such as mutual funds and stocks.
You might even consider starting a business. Owning your own business can be a great way to increase your income and build your wealth. In fact, some businesses, you might be able to afford to do, even as you build up your nest egg and eliminate debt. As an example, for about $50-$60 a month, you can start to run an affiliate marketing business. The folks at Affilorama can show you the basics. I wouldn’t sacrifice the future just to get started, but if you could afford it, this is definitely one idea.
What is your wealth building plan? What tips do you have for building wealth? Share them in the comments below!