In financially unsure times, it pays to think ahead and budget. For many young Americans the economic recession has put a crunch on finances, but it’s still possible to build wealth in your 20’s. Building wealth is accomplished by being conscious of your finances. What you spend versus what you save is a key measurement, but more importantly, what are you spending your money on? Lasting wealth is built by spending money on investments and limiting frivolous purchases. Follow these 5 wealth building secrets while your young and accumulate lasting wealth.
Wealth Building Secret #1: Assets Over Liabilities
You’ve probably heard this a number of times, but have you ever taken the time to think about what it really means? More importantly, have you ever applied it to your own finances? Well, that’s step 1. Do an honest assessment of your life and identify where you are spending on assets and where you can cut spending on liabilities. Don’t be fooled into thinking liabilities and assets are mutually exclusive. For instance, the same car you use to drive to work (asset), is also a liability when you take into account all the money you’re spending on upkeep. The realistic truth is that something like a car should never be considered an asset because of the financial obligations that are attached to it. You want to have your money in real assets like stocks, mutual funds, bonds, and loans. These types of investments don’t cost you money to upkeep and they usually grow in value over time.
Wealth Building Secret #2: Set Up a Retirement Account
Why would you want to set up a retirement account in your 20’s, you ask? Well, aside from the fact that the earlier you start saving for retirement the more compounding interest you’ll receive, retirement accounts like IRA’s are subsidized by the government and have beneficial tax consequences. Do a quick search on Google or talk to a representative at your bank about the best type of retirement account for your needs. Even if you’re only adding $1,000 a year, the compounding interest on that money adds up fast.
Wealth Building Secret # 3: Pay Your Credit Card Off Every Month
Now, I’m not advocating that you should get rid of all your fancy credit cards. I’m just saying that your finances will benefit by minimizing your use of credit and paying your balance in full each month. The typical interest rate on a credit card is over 15% these days. When you rack up debt on your credit card, not only is it a negative mark on your credit history, but you’re paying through the mouth to keep your debt current. If you’re only paying your minimum payments, it could take years to pay off a purchase you made in one day. All that money your paying in interest could surely be used towards something more beneficial.
Wealth Building Secret #4: Get Your Degree
While this may cost you some money up front, college graduates, on average, make $1,000,000 more than their non-degree holding counterparts over the course of a career. It makes sense in today’s competitive job market to have a degree under your belt. Think about how much more confident you’ll feel when you apply to jobs with that degree on your resume. Not only does it show you’re capable of starting and finishing something, but it gives you a leg up on the competition. The benefits of a degree are both tangible and intangible.
Wealth Building Secret #5: Save Money Everyday
Whether it’s $1 or $10, the more you get in the habit of saving money everyday, the better off you’ll be. Learning to save money is difficult, but it’s rewarding when you look at a substantial balance in your bank account. Put the money you save in your retirement account or use the money for other investments that you’ve been eager to make. The big thing is, don’t just save the money and blow it on something frivolous. Use this towards building a more financially stable future.
If you can follow these 5 strategies to build wealth in your 20’s, you’ll never look back. Be conscious and responsible about your spending and you will live a more fulfilling life.