The Secret to Building Wealth

Building wealth is something that almost anyone can do, with the right plan. Although high incomes or a big inheritance certainly make it easier for people to save money and plan for retirement, it’s not a necessity. Your financial attitudes, especially as they relate to savings and debt, can help you work toward your life goals. With these ideas, you can evaluate your current financial situation and make changes that will improve your path to building long-term wealth.

Improve Your Cash Flow

In order to determine how to better build wealth, you need to understand your cash flow. Cash flow means the rate at which money comes in, related to how quickly it goes out. Having a higher income than expenses doesn’t necessarily mean you have a great cash flow, especially if your expenses come due before you get paid. Improving your cash flow usually involves at least one of these tasks:

• Increase your income with a better job or a second job.
• Decrease your expenses by cutting back on incidentals or canceling unnecessary subscriptions.
• Coordinate your expenses around your pay schedule.

If you’re not sure where to start, make a budget for your monthly expenses and see how you can adjust them.

Build Your Savings

Everyone needs savings sometimes. Without a safety cushion of available funds, something as simple as a flat tire could put you behind on your bills. Ideally, people should have three to six months of expenses in savings that would be relatively easy to access. If you’re just getting started, try to set aside a little each time you get paid. If you can spare 10-20% of your paycheck, it can add up quickly. When you have your next emergency, you can use the savings instead of getting into debt or being late on your bills.

Automate Financial Transactions

In a world of automated systems, there’s hardly any reason for you to manually pay bills or put money into savings or investments. For utilities and other regular expenses, set up automatic billing, so you never miss a payment. Your banking institution may make it easy to automatically withdraw money into savings accounts when you get paid. With this system, you just have to keep track of the money in your account and manually pay one-off expenses such as car repairs. As an added benefit, your savings will grow without you noticing that the money is gone.

Be Selective About Debt

If you have access to credit, it’s important to be careful about how you use it. It can be easy to get yourself into financial trouble, with too much debt in relation to your income. Focus your applications for credit on things you really need or that help you reach your financial goals. Getting a loan to buy a home or have a reliable vehicle to get to work could be a good use of debt. By comparison, putting regular expenses on a credit card to increase your cash flow can create problems.

Keep Learning

Building wealth is a lifelong process. Even if you don’t feel like an expert right now, you can still learn a lot and discover new ways to achieve your financial plans. Once you have significant savings or you are ready to start diversifying your investments, it’s a good idea to consult with a financial planning advisor. Financial advisors can evaluate your income and available funds for investment and help you devise a plan that will work best for your retirement goals and other long-term financial intentions.

Building wealth isn’t just for the rich. If you have extra income, you can use it to improve your cash flow, build your savings and make investments in your long-term financial health. For more ideas about the keys to your success in building wealth, please see the accompanying resource by Skyline Advisors.