Personal finance is something most people don’t like discussing with their friends and family.
It’s a touchy topic so my family never really taught me anything about building wealth. The most they would tell me is to be sure that I had enough money saved for the rainy days so I could go and grab myself some food to survive.
“Rui, all you need is enough money to eat and sleep under a roof to get by; nothing more.” was something my father would always tell me over and over again.
As a kid, it never crossed my mind that my family was considered poor with no job and no assets. Forget about eating healthy, there were times when we didn't even have enough food. What does "being poor" even mean?
Going into my late teenage years and early 20s, I knew that I didn’t want to continue living life this way. One day, I decided to educate myself on personal finance so I started reading books from the bookstore and digging up on articles online that teach you how to build wealth from nothing.
In my early 20s, I learned a thing or two about building wealth (the slow and steady way) that most personal finance experts would teach you such as:
1. Live below your means
Don’t spend more than you earn.
It doesn’t matter how high your income is, you’re not creating wealth when you spend all of it on things you can’t afford.
To live below your means, be sure to follow the most effective frugal living tips to help you achieve your savings goals.
On top of that, you may want to look for ways to earn extra money. It’s a good idea to increase your cash inflow to help live below your means.
2. Save 15% of your pre-tax earnings for retirement
A general rule of thumb that most personal experts advise is to save at least 15% of your pre-tax earnings for your retirement plan.
The good thing is this includes any employer contribution plan or match, so be sure to take advantage of your benefits. It’s almost like getting free money, so why not?
3. Negotiate your monthly bills
One of the most effective ways to save a ton of money each month is to learn how to negotiate your monthly expenses.
You know that high Internet or cellphone bill you’re paying for? Could you get a better deal elsewhere without sacrificing the features you want?
Trust me, you’re going to want to negotiate the big bills such as the Internet, cell phone, home insurance, and car insurance. By doing this, you could potentially save several thousand dollars per year!
It will take some time and negotiation skills, but it is so worth it in the end!
4. Make extra money
This advice never fails.
Finding ways to increase your income can make your life much easier if you can find the extra time to do it on the side.
There are so many side hustle ideas and creative ways to make extra money in today’s time. There are even fun ways to make money online too! It’s what I do to bring in an extra $1,000 per month!
Be sure to find one that you enjoy so that it doesn’t feel like a chore or work.
5. Read more books
As I mentioned earlier, talking about money is a taboo and not many people are open to it.
This is where personal books are great for people who want to learn more about building wealth.
A few popular and classic books include:
- The Millionaire Next Door by Thomas J. Stanley and William D. Danko.
- The Automatic Millionaire by David Bach
- I Will Teach You To Be Rich by Ramit Sethi
These personal finance experts could literally change your life within a year!
6. Negotiate your salary or switch jobs
Do you feel like you’re stuck at your current job with no growth?
It’s important to continue learning and improving your skills. These are assets that no one can take away from you.
When you learn more and have the skills, you work on training yourself for more senior positions, so you could either get that promotion or switch jobs that offer you higher pay.
Finding ways to increase your salary can make a difference to your savings over a long period of time; that’s, of course, assuming you save the difference and not spend it.
7. Getting rid of all your debts
Many Americans are living paycheck to paycheck and are in a lot of debt. It’s no wonder why they find it difficult to save.
Every payment you make to any type of loan is making you poorer due to the high amount of interest you pay. It’s important to learn how to get out of debt before you save and invest. Only then you can really start creating wealth.
8. Investing
As mentioned, once you get out of debt, you can start investing your money. The effect of compounding interest is like magic when you see your money grow over a long period of time.
If you want to reap the benefits of compound interest, then be sure to start investing as early as possible. The younger you are, the more time you have on your side. Time is a valuable asset when it comes to investing.
Summary
As you can see, building wealth is basically looking for ways to earn, save and invest. The best way to become wealthier is to combine all the tips mentioned in this post. That includes the following:
1. Live below your means by not spending more than you earn.
2. Be sure to save at least 15% of your pre-tax income aside for retirement.
3. Negotiate on your biggest expenses so you can save more each month.
4. Find ways to increase your earnings by bringing in extra money.
5. Continue to learn and educate yourself despite being out of school. Most people don’t teach you about personal finances in life so it’s important to learn about them on your own by reading books or articles online.
6. Don’t forget to improve your skills at work and in life. These are assets that pay you dividends in the long run. They can also be used to negotiate your job or switch careers for higher pay.
7. Get out of debt before you get serious about investing.
8. Getting started with investing as early as possible can increase your chances of becoming wealthier sooner. The earlier you start, the more time you have on your side to build wealth. On top of the skills you develop through life, make sure to take advantage of the time you have. It’s one of your greatest assets while you’re young.
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