While landing a high-paying job is a good step, many more factors are involved if you want to have a financially secure future. It’s essential to learn wealth building habits to ensure you’re financially stable not just temporarily, but in the years and decades to come.
As Robert Kiyosaki, founder of the Rich Dad Company, explains, “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”
Keep reading to learn how to keep your money, make it work for you and feel confident about your finances.
1. Pay Yourself First
Paying yourself first doesn’t just apply to people who own businesses. It applies to everyone. Frequently, people get paid, spend money on bills, treat themselves to a few nonessentials and then plan to save whatever is left.
Paying yourself first means you automatically route funds from each paycheck into a savings or investment account.
It’s often possible to do this through an employer. You can automatically have a fraction of your paycheck go towards an employer-sponsored retirement plan. Sometimes, you can also arrange to have some of your wages be deposited into a standard savings account.
Without an employer’s help, you might choose to simply have automatic payments from your checking account go into one or more savings accounts or retirement funds. Treat your savings like bills that need to be paid.
You want to remove the temptation to skip any contributions. Many find it useful to have several accounts.
You might automatically have funds deposited into a retirement account, another amount put into a savings account labeled Emergency Fund, and another that is saving for a wedding, house, vacation or any other major expense.
2. Develop High Income Skills in a Niche
Your biggest assets are your knowledge and skills. The more in-depth your skillset is and the more experience you have, the more opportunities are available. If you make more money, you have more to save. Your career is a significant factor in securing your financial future.
It’s important to develop both in-demand soft skills and hard skills. Soft skills include interpersonal skills, personality traits, attitudes and social and emotional intelligence.
LinkedIn Learning data shows managers spend 30% more time advancing soft skills than average learners.
Hard skills are more teachable and easily measured skills. Try upskilling, the process of learning new skills within your current job function. For example, marketers had to learn how to use social media to stay relevant in today’s digital world.
Personally, I’ve taken on freelance finance writing to earn extra income.
3. Invest Your Money as Early As Possible
While life may feel expensive at any age, it unfortunately gets more costly as you get older. The good news is that investing even small amounts of money when you’re younger can lead to substantial gains later in life.
When you invest long-term, you can make riskier investments than you could if you need to use invested money within a few years.
Often, growth stocks can lead to the highest returns. However, investors need the time to wait out the lows during the most volatile periods. Investing early gives downfalls time to recover.
When you don’t start investing until later in life, you’re usually advised to be more cautious with your investments.
The earlier you invest, the more you can take advantage of compound returns. Compound returns are essentially the returns earned on your returns.
If you continually reinvest your earnings, you’ll substantially increase your return on investment. Let’s look at an example of how saving the same amounts, at different times, affects your money.
Let’s say Trisha opens an investment account with $1,000. She continues to contribute $1,000 each month for 30 years. At the average annual stock market return of 10% per year, after 30 years, Trisha’s account would be worth nearly two million dollars, $1,991,377.67 to be exact.
Ben decides to invest twice as much for half of the time. He opens an account with $2,000 and invests an extra $2,000 every month for 15 years.
With the same 10% returns, he would end up with less than half of the amount in Trisha’s account, $770,894.06 exactly. You can play with different scenarios here to quickly see how the earlier you invest, the better.
How Should I Invest Money to Build Wealth?
When you invest in index funds, you immediately diversify your portfolio across multiple stocks or securities. They track an index and don’t carry firm-specific risk.
While I highly recommend carrying the majority of your investable assets in index funds for the long-term, I do also suggest adding growth stocks to your portfolio.
When properly researched and analyzed, you can uncover hidden gems that will outpace the market for many years. These added percentage points of return can add to your portfolio substantially across long periods of time.
The stock picking service and investment newsletter highlights the company’s top 24 growth stocks you should add to your portfolio and provides thoroughly-vetted stock analysis to justify their recommendations.
As your investments grow at different rates, M1 Finance will automatically rebalance your holdings at a predetermined interval, allowing you to lock in gains and redistribute them to undervalued securities.
- How to Start Investing as a Teenager
- Best Investments for Teenagers
- Best Investments for Young Adults
4. Live Within Your Means
“Too many people spend money they earned, to buy things they don’t want, to impress people that they don’t like.” -Actor Will Rogers
To live within your means is to spend less money than you earn and save. Tools such as credit cards and loans often provide people with a temporary method to live outside their means.
When we want a higher standard of living, we need to earn enough money to achieve it and strategically save for both expected and unexpected expenses.
Credit card rewards can save people money, but if you’re spending more than you can afford to pay off in full each month, you’re trying to live outside your current means.
It’s crucial to calculate how much money you actually have available to you. Your salary gets cut down by taxes, so know your actual take-home pay. With this number in mind, create a budget that shows all of your expected expenses.
Consider trying “backward budgeting,” where you calculate your take-home pay and subtract your expenses. If this math results in a negative number, you’re living outside your means and need to either make more money, cut down on costs, or both.
Be aware of “lifestyle inflation,” where people start to increase expenses as soon as their pay increases. Consider sticking to debit cards to limit how much available money you have to spend.
Related: Best Budgeting Apps for Couples
5. Plan and Create Goals
Generally, people want to make and save as much money as possible. However, rather than vague goals of “as much as possible,” it’s better to have your financial goals be specific, measurable, achievable, relevant, and timely (SMART).
What specifically will you need extra money for in the future?
Write down your financial goals and categorize them as short-term (less than five years), mid-term (five to ten years), and long-term (over ten years). It’s even better if you can set target dates for each financial goal.
Prioritize your goals in terms of what is critical, what you eventually need, and what you want. For example, you might have a surgery coming up that your insurance won’t fully cover and it’s critical to your health.
That will take priority over your old car that needs to be replaced eventually, but not necessarily soon.
You might also be saving for a dream vacation. However, you put that in the “want” category because if your cash flow dwindles, it’s the goal that may need to miss a payment.
Estimate how much each goal costs and divide it by the amount of time you have to save to figure out how much you need to contribute each month or year.
For instance, if you plan to buy a house in five years and want to put $30,000 down, you’ll need to put $500 towards that purchase each month.
6. Surround Yourself with Successful People
Surrounding yourself with successful people puts you in a wealth-building mindset and gives you more chances to discuss financial topics. It can also help you accelerate your career because the more connections you have, the more opportunities present themselves.
7. Always Continue Learning
Two key ingredients for leading a happy life are to be grateful and continually learning. More money is always nice, but many of us forget to feel fortunate for our current situations.
No matter what your job or education level is, we’re all capable of picking up new skills. Learning not only makes it easier to progress in one’s career, but it also keeps us motivated, confident, and interested in our work.
The more you learn, the more potential you have to develop good money habits, grow wealth and secure your financial future.
About the Site Author and Blog
In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time. My job routinely required extended work hours, complex assignments, and tight deadlines. Seeking to maintain my momentum, I wanted to chase something ambitious.
I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity. I launched the site with encouragement from my wife as a means to lay out our financial independence journey and connect with and help others who share the same goal.
I have not been compensated by any of the companies listed in this post at the time of this writing. Any recommendations made by me are my own. Should you choose to act on them, please see the disclaimer on my About Young and the Invested page.