Many people believe that saving is the key to becoming a millionaire, or at least to getting rich. Although saving is an important component to growing your wealth, that by itself is not enough. Not spending everything you earn is important, but even more significant is what you do with that money you are not spending. So what can you do to make the most of your money and make it to the lifestyle you want to have?
A good first step to figuring out what to do with your funds is improving your overall financial literacy. Financial literacy shouldn’t be overlooked as it can help you achieve your wealth goals by providing options for how to implement financial skills in your everyday life. Check out the AmeriChoice Financial Literacy tools to learn more about what you can to to keep and grown the money you have.
To get your savings machine in motion and put your money to work building toward your future financial security, a budget is the smart first step. Budgeting – the word no one likes to hear. Setting limits on your spending can take time to get used to, but the sooner you start, the easier it will become as living within a budget becomes a habit. Over time, the benefits of reduced financial stress and greater peace of mind that you gain from budgeting will far outweigh the brief moment of joy that splurge purchase might have given you. To learn more about different and creative ways to budget, click here.
Once your finances are in order, you can start to save. You should first have an emergency fund in place before you begin considering investments for your money that may entail greater risk.
There are many ways to save, but if you want to help your money to grow, keeping it buried in the backyard or stashed under your mattress isn’t the best choice. Due to inflation, your unspent, uninvested money could lose value. The smartest way to save is to do so with a savings account that adds interest to the money you’ve saved. Beyond traditional saving accounts, Share Certificates offer higher rates of return in exchange for a fixed length of deposit. So once your emergency fund is in place, consider Share Certificates as a way to put your money to work for you without long-term commitments.
Like budgeting, the more money you save, the easier the act of saving money becomes. See our blog about saving to learn more tricks of the trade and see what types of savings tools are available through AmeriChoice.
To build credit, taking on a repaying debt is a necessary evil. But taking on smart debt is very different from letting your borrowing get out of control. Separating wants and needs is vital to making smart financial decisions. If your emergency savings fund can’t cover an expense, ask yourself if what you’re trying to purchase is a want or a need. The choice to live modestly today may be uncomfortable in the moment, but building your personal wealth and net-worth is a commitment that will pay off in the long run.
Starting your own side business is a great way to add income and control how much money you make in a year. Starting small is ideal because you can maximize your spare time on your own terms to make extra money. Then, if your business grows, you can make a logical decision to leave your job when you’re in a better financial position. With you at the helm at your own business, you can be in full control of all of your financial decisions in your life.
An IRA or 401(k) is a great way to invest and bring a great return on your money. These accounts do lock-up your money for a much more significant amount of time. However, they can provide some of the highest levels of return on your investments.
Even better, if your employer offers a matching plan for retirement contributions, take advantage of it. If your employer will match your contribution to your IRA or 401(k), you’re throwing away free money if you don’t contribute the max amount that your employer will match.
Money that comes to you in the form of tax returns, bonuses, inheritances, or raises should be invested and should not be included in your yearly budget. If you are using your budget properly and staying out of debt, any unexpected income should be invested. Doing this won’t negatively affect your day-to-day or even month-to-month finances. It will truly be bonus money that can be used to grow. This approach also helps reduce the risk to your overall financial security if it is lost.
What can this look like in practice? Let’s say you are 28-years old and you received the average tax refund last year of $2,640. Because this was unexpected, unbudgeted income, you made it a one-time contribution to your 401K. With an estimated rate of return of 5% on your 401(k), by the time you are ready to retire at 65, that money will have grown to over $16,000.
For those that make these kinds of choices consistently, tax returns, bonus checks, even the money raised from garage sales or side hustles, can provide significant financial security in the future.
Even though saving money alone won’t make you wealthy, a combination of budgeting, keeping your debt to a minimum, saving and making smart investments will increase your wealth. Remember that you are the one who is in control. By having good financial literacy skills, you can make your money work for you instead of always working for your money.