Do You Have a Wealth Building Plan?

PaperRecently, 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.

Emergency Fund

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.

Eliminate Debt

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!

26 comments… add one

  • Candice Michelle October 19, 2011, 10:01 pm

    For me, one of the best ways to save money is to get rid of unnecessary purchasing such as those things that I don’t actually need. Instead of buying those products, I will just save the money, which I can use to increase my wealth or for a more important purpose in the near future.
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  • Grady Pruitt October 19, 2011, 11:20 pm

    Candice, that’s the point I made in my last two posts on money is that we need to find the ways we are spending money unnecessarily for things we once used but are no longer, and other ways, such as through late fees and overdrafts. With that money, you can pay off debt and save for the future.

    Thanks for stopping by!

    Reply
  • Chris Antonelli@Reston va homes for sale October 20, 2011, 4:27 am

    Awesome post. Managing finances can sometimes be a hectic task for many people mainly because of overspending. Having the emergency fund is very important as you can never know when something will happen. An example of sickness is appropriate as one can never know when he or she will fall sick. It is always good to be prepared. Having debts is something that can drag you down but once you pay them off then you can start building your wealth.

    Reply
  • Grady Pruitt October 20, 2011, 12:49 pm

    The “emergencies” that pop up “unexpectedly” are one thing that many people claim keep them from building wealth. Having an emergency fund can help with that. Thanks for your comments!

    Reply
  • Debbie @ Happy Maker October 20, 2011, 10:38 am

    Hi Grady,

    I like the way you break it all down in saving money. that nest egg is so important. If the furnace goes out you are not in a panic, you are covered.

    It is amazing what we spend money on that we don’t need to. One thing that I notice about people, is when you go to the mall, you see many people stopping to get something to eat or drink. I always wander how much money they would save if they bring there own drink with them when they leave home and eat before they leave home.

    Another is if you can’t pay off a credit card every month you probably shouldn’t be using it. The interest on them can eat you alive. To me money is a tool just like a hammer. When used in the correct way it will last longer and serve you will.

    Thanks for a great post with good advice on money.
    Blessing to you,
    Debbie
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  • Grady Pruitt October 20, 2011, 1:04 pm

    My wife has a couple we use for purchases, but we always try to pay them off in just a few months. Buying things on credit is an epidemic in our society, and it’s one that can be really dangerous.

    Thanks for your comments!

    Reply
  • AnneWayman@freelancewriting October 20, 2011, 11:37 am

    One thing that helps me save Grady is tracking all my income and expenses… I can then spot spending leaks.
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  • Grady Pruitt October 20, 2011, 1:07 pm

    Very true, Anne. Paying attention to all the income and expenses is the best way to stop waste as soon as it happens.

    Reply
  • Bryce Christiansen October 20, 2011, 1:38 pm

    I think many of us would be well off if we didn’t have the debt we do. For example, I have car payments, credit card (health payments) and some furniture debt that if I finished paying off would leave me with over $500 more a month. That is some useful income.

    Using that I could invest more in my own business and continue to grow my wealth. Excellent points Grady.

    Bryce
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  • Grady Pruitt October 22, 2011, 12:35 am

    I’m not saying that all debt is bad, but we, as a nation, do have an over-dependence on debt for the things we have. The smart people avoid debt as much as possible. I’m working on fixing this myself. It’s very tempting to run up debt for the things we “need”, but we are sacrificing the future for the now.

    Thanks for your comments, Bryce!

    Reply
  • Marcelina Hardy October 20, 2011, 3:45 pm

    Well, this doesn’t help now since rates are at 1 percent but hey, if they ever improve CDs are awesome when they are high in interest.
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  • Grady Pruitt October 22, 2011, 12:40 am

    I didn’t check rates, but usually, CDs have a higher interest rate of return than a regular savings account, which is what I was going for. As you’re growing your money, you want to bump it up to the next highest interest that you can. The higher the interest rate, the more you make for the money just sitting there..

    Thanks for your comments.

    Reply
  • farouk October 22, 2011, 6:24 am

    that’s a good plan Grady
    thank you for writing the post :)

    Reply
  • Grady Pruitt October 22, 2011, 1:39 pm

    Thank. But it’s only good if it is followed. Any plan that is not followed doesn’t do anyone any good.

    Thanks for stopping by!

    Reply
  • Mitch Mitchell October 25, 2011, 10:56 pm

    Paying off debt was my first big way to save money, and it’s about to occur again. With 3 more payments I’ll reduce my monthly debt by $500, and I’ll use that to put money towards both a savings fund and to pay down some other debt that I’ve allowed to get too high, though it was a long time ago. In the battle between saving for the future or paying down current debt, if one is going to be smart they’re going to look at rates and realize that it’s better getting rid of an outstanding credit card bill that’s 15% annually versus putting it into a savings account that pays you less than .2%. But it doesn’t have to be one thing or the other; never had to be.
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  • Grady Pruitt October 26, 2011, 8:25 am

    That’s a true point, Mitch. Depending on the amounts you have to pay on the debts, as you pay one off , you can take some of it for savings. I think, though, not everyone has the discipline to keep up with both, which could be why “experts” usually recommend more of an “either/or” strategy.

    Thanks for your comments!

    Reply
  • Sara @ Tours of the Vatican October 27, 2011, 1:11 pm

    I have been going through Financial Peace University with Dave Ramsy and he talks about the same principles. I love that wealth building lessons are not a secret I am just disappointed that it is not taught in schools.

    Reply
  • Grady Pruitt October 28, 2011, 1:17 am

    I haven’t been through FPU, but I used to listen to the Dave Ramsey Show. He has some really good advice. I am also disappointed that these things aren’t taught in schools, but that doesn’t mean we can’t teach them to our children!

    Thanks for your comments!!

    Reply
  • Rosie @ Dentist Los Angeles October 27, 2011, 1:14 pm

    I am starting a wealth building plan and just got that emergency fund in place. I’m excited to have the knowledge to move forward into financial security. Hope that I don’t ever get to a place where I put it on the back burner and forget about it. Any tricks to continue on in the process?

    Reply
  • Grady Pruitt October 28, 2011, 1:22 am

    Stop piling on debt. Once you clear off a card, then don’t use it anymore. It’s one thing to use a card for a vacation and to pay it off within a month or two, and something else entirely to add to your debt over things that will be used up by noon with no future return. Spend less than you make, and you’ll be fine. Good luck, Rosie, and thanks for your comments!

    Reply
  • Di October 29, 2011, 1:50 am

    Very interesting topic on wealth building. I’m sure it is tough to get into any wealth building plan in this economic times we’re in right now but being persistent and consistent will make a big difference
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  • Grady Pruitt October 29, 2011, 12:07 pm

    Now is actually the best time to start a wealth building plan. When the economy is down, you have to cut back anyway. Then, as the economy grows and your income goes up with it, you’ll find yourself in a much better position to be able to do the things you want to do without having to go into debt, which is the eventual goal of any wealth building program!

    Thanks for your comments!

    Reply
  • FX Agent January 4, 2012, 2:58 am

    There are so many factors effected to build a wealth plan. Here you have posted such a informative post which will be helpful to so many financial investors.
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  • Grady Pruitt January 16, 2012, 12:13 am

    Well, I don’t know how much of what I have to say will affect investors, but I do hope that it will be beneficial to the common man :D

    Reply
  • Elston Perez April 2, 2012, 7:40 am

    To succeed, you must build on the principles you already know. This includes knowing why you want to achieve your goal to become wealthy. You must have a clear and powerful desire to carry you beyond the setbacks.

    Reply
  • Grady Pruitt April 2, 2012, 8:23 am

    That’s true, Elston. Understanding what you want to achieve is important for any goal, and it’s no less true for finances. Thanks for your comments!

    Reply

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