How To Build Wealth

You’ve worked hard to achieve financial success and build your income, but do you know how to build your wealth? Try this exercise: Add up the total financial value of all your assets (your wealth), then subtract the total amount of your debt. The result is your net worth. The bigger that number is, the more financial resources you have available. That’s why making the transition from high earner to wealth builder is so important.

Wealth isn’t just the money the very rich spend on mansions and yachts. It’s the way your long-term financial goals become possible to achieve. Those goals may include saving enough money to last through retirement, becoming financially independent, passing something on to the next generation, or giving back to your community.

Finding ways to keep more of what you earn is an essential step toward making the transition from high earner to wealth builder. Here’s how:

• Tackle your debt, including credit card accounts and student loans.
• Track your expenses and look for ways to cut out unnecessary spending and how to save for the things you need and want.
• Allocate the extra money from cutting your debt and spending to saving and investing.
• Calculate how much you will need in retirement so you can set a savings target.
• Increase your retirement plan contributions, including making catch-up contributions if you are 50 or older.

If one of your goals is to pass on some assets to the next generation of your family, you need to make plans for how your money is spent now and after you pass away. Those steps can include:

• Creating an estate plan, which is the most common way to transfer generational wealth. Work with an estate attorney to make sure your will and other key estate planning documents are in order.
• Owning a home, as it will likely be the most valuable asset you have to pass on to your heirs.
• Having life insurance, which can be another important option to pass along some of your wealth to family members.
• Owning an annuity, which includes beneficiary benefits that can help you control how and when assets are distributed and help your loved ones avoid the complicated probate process.

You also can share some of your wealth while you’re still living. This can take several forms (in each case, be aware of restrictions and the tax implications):

• Gift money to a family member to help out with a down payment on a home or provide startup funding for a business, for example.
• Provide educational assistance by creating a savings fund for a grandchild’s college education or making a tuition payment directly to their school.
• Pay for medical expenses for a family member directly to a health care provider.
• Own a family business that you can pass on to the next generation.

Let’s get one thing straight: The only “good debt” is paid-off debt. Your most powerful wealth-building tool is your income. And when you spend your whole life sending loan payments to banks and credit card companies, you end up with less money to save and invest for your future. It’s time to break the cycle!

Trying to save and invest while you’re still in debt is like running a marathon with your feet chained together. That’s dumb with a capital D! Get debt out of your life first. Then you can start thinking about building wealth.

Financial goals can be short-term, mid-term or long-term. A short-term financial goal might be saving money for a vacation. A mid-term financial goal might be wiping out your student loan debt, and a long-term financial goal might be investing money for retirement.

Setting financial goals—and then achieving them—can help put you on the path toward financial security.

So how do you set these goals? Here are some steps that might help:

1. Determine what matters most to you. For example, are you eager to eliminate your student loan debt, or are you laser-focused on retiring comfortably?
2. Come up with a list of short-term, mid-term and long-term financial goals. Make sure your goals are realistic to avoid getting unnecessarily discouraged.
3. Assess your income and expenses. Review the money coming in and going out every month, and then create a monthly budget to keep your financial plan on track.
4. Monitor your success. Keep track of the goals you’ve met and those you still aim to reach. As part of this step, consider dividing each long-term goal into bite-size, short-term targets to make them easier to achieve.
5. Make adjustments as needed. Accept that your goals might have to change over time. For example, a job layoff or an unexpected hospital stay might change your situation and require you to rethink your goals.

Building wealth requires discipline to stick to your budget, resist impulsive spending and stay committed to your long-term goals. Don’t worry if you’re starting out small. The important thing is to make a plan and get started. Remember, building wealth is a marathon, not a sprint.