You’ve probably heard that get-rich-quick won’t work in most cases unless you win the lottery or receive a large inheritance. But, if you’re trying to build wealth yourself, if it sounds too good to be true, it probably is.
On the other hand, if you want to build real and lasting wealth, it is important to have a concrete plan with defined steps. Then, of course, you have to follow these steps.
In other words, it’s not enough to have a vague goal of wanting to be rich. Without specific steps to help you achieve your goals, you won’t be able to move forward or, worse, you can even go backwards.
Luckily, our experts have provided their top tips for building wealth that you can turn into actionable steps. Depending on how you define it, you might not be “rich” in five years, but you can definitely set yourself up for success and be on your way to it long before.
Also read: 9 ways to get rich in 2022 More tips: The 5 fastest ways to get rich, according to experts
1. Know where your money is going
Knowing where your money is going is the first step in any successful financial plan. If you don’t know where your money is going, it can be hard to put it to better use. Typically, this step would involve setting up a budget, but Mark Wilson, founder and president of MILE Wealth Management, takes a different approach.
“I don’t recommend massive spreadsheets here,” he said. “I recommend categorizing (roughly) your expenses. Instead of tracking each line item, he recommends establishing categories of Duty, Grow, Give, and Live. Wilson gave examples of what each category might entail:
Grow includes your short-term and long-term savings
To give is the amount you donate to charity
To live is everything else – your “more discretionary” expenses
Wilson recommends allocating a certain percentage of your money to each category; for example, 25% Shall, 10% Grow, 5% Give, 60% Live. You can tailor these percentages to how you spend your money, but each category is important.
2. Educate yourself financially
Something that is arguably not discussed enough is the degree of lack of formal education and training in finance. Everyone should know how to manage their money, but many people have to learn the hard way, only after finding themselves in precarious financial situations.
“A lot of things are taught in schools. However, they don’t tell you how to become financially independent,” said Lyle David Solomon, senior attorney at Oak View Law Group.
Solomon recommends studying various aspects of finance, from how to raise your credit score to interpreting profit and loss statements.
“You can study money in different ways,” he said. “The first and most important thing is to read books. Hundreds of great books written by millionaires, billionaires, and successful executives will teach you a lot about money.
3. Pay off the debt
Once you know where your money is going, your next step should be to aggressively pay off your debts. In many cases, debt simply burdens people and does not provide them with any ongoing benefit. As Laurie Itkin, Financial Advisor and Wealth Manager at Coastwise Capital, put it: “The rich only borrow money if there is an opportunity to earn more than they will owe on the debt.”
But buying the latest smartphone model with a credit card will usually not provide monetary return. Therefore, if you have this type of “deadweight” debt, Wilson recommends working on this category, your debt.
4. Have multiple sources of income
The common approach to covering expenses is to find a job — in other words, a single source of income. But this is rarely, if ever, the case for those who are able to build serious wealth. Having multiple sources of income not only increases the cap on how much you can earn, but also eliminates the risk of you losing all of your income if you are laid off.
“The majority of millionaires have many sources of income,” Solomon said.
It emphasizes the constant flow of income offered by multiple sources of income.
“If one stream is interrupted,” he said, “you still have other streams coming in. In other words, you should never rely on just one source of income.”
Tip: 6 ways to create a generational legacy for your family
5. Increase your “Growth” category
Once you’ve worked through the previous categories, it’s time to start building your wealth. It goes back to Wilson’s categories with the Grow Zone. He did, however, elaborate on Grow as there are many ways to approach wealth building.
“Increasing the percentage you contribute to a company-sponsored 401(k) plan or automating monthly contributions to a Roth IRA are great ways to do this,” Wilson said. “As your income grows, put in half of your growth percentage and enjoy the other half. This step has a double benefit: you build your retirement nest egg and, more importantly, you reduce your expenses. , so you won’t need to save as much in total.”
Another way to increase your Grow category is to dedicate a percentage of each additional payment to savings – “say 10% of Uncle Gerry’s gift certificates at Christmas and 10% of your bonus,” says Carol Schleif , Associate Director of Investments at BMO Family. Office. “The earlier you invest, the more the magic of compound interest works for you.”
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This article originally appeared on GOBankingRates.com: 5 Steps to Take Now to Be Wealthy in 5 Years