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Wealth is an accumulation of good decisions, and not only financial ones. You should be proactive today about setting yourself up for the best possible financial future. Here are 4 things to make sure you’re doing so that you can reap the reward of more time later on in life, flexibility to choose the work you want to do or spend time with your family, or even the freedom to retire early.
Before anything else, clear your debt. Just because debt is common, doesn’t mean it’s acceptable to have it. High-interest debt, such as a credit card, is going to be your biggest enemy when it comes to building wealth because you’re paying so much in unnecessary bills.
But you can start taking steps to reduce your debt quickly. Create and stick to a budget that enables you to consistently allocate a portion of your monthly income to pay off high-interest debt. This might mean a few months of less spending on eating out or vacations, but it will save you thousands in the long term. Once you’ve eliminated your debt, you can start paving the way to creating wealth and achieving your life goals.
You can increase your savings capacity by decreasing your expenditures, but also by increasing your monthly income. One of the surest ways to get a raise is to put in the work to increase your earning potential.
Over time, employees naturally continue to become more valuable as they expand their skills, experience, and knowledge. Though, taking a more active approach in improving your functional skills or soft skills can up your earning potential, whether that’s at your current employer or a new one.
Don’t think that deepening and broadening a skill set is just for young professionals. Careers last for decades, and it’s the people who consistently and tenaciously strive for excellence and growth who lead. No matter your seniority, there are always ways to improve public speaking, leadership, technical acumen, and more. The rise of reputable online courses makes it easier than ever to plug into a pre-recorded online course on your way to the office.
Keep in mind that some people who get raises fall prey to lifestyle inflation, meaning they upgrade their lifestyle with their raises, instead of maintaining a similar quality of life and investing more each month for future opportunities. Make sure that doesn’t happen to you. Your goal is to earn more so that you can more effectively and efficiently build your future.
At this point, it’s widely understood that unhealthy diets and infrequent physical activity are key risk factors for chronic diseases, such as diabetes and cardiovascular disease. These diseases, which are already emotionally, physically, and logistically difficult to manage, can cost a lot of money to manage.
By taking care of yourself now, you can reduce the risk of disrupting your income or dipping into your emergency fund. You don’t want to end up dipping into your assets or investments to pay for huge medical bills later on in life for chronic diseases that you could have avoided by making better decisions about exercise and diet. So, take the time now to find ways to work a healthy lifestyle into your daily routine.
Leading a healthy lifestyle certainly reduces your chances of developing chronic diseases, but that doesn’t mean you should risk not being prepared for an unexpected illness or injury. The expensive medical bills that come with unexpected medical emergencies could potentially be a huge drain on your wealth. You can prevent this by making sure you have adequate health insurance. Not only does health insurance increase your ability to afford the medical care you and your family need, but it also protects you and your family from the financial burden of having to pay off a medical emergency.
Lastly, make sure you have a financial plan in place that includes not just saving but also investing. Except for the far and few lucky cases, wealth is a result of consistent, disciplined saving and investing, and starting this process early. The more you save and invest, the closer you are to achieving your financial goals.
Consider this; if you started consistently saving $10,000 USD per year (or about $900 USD a month) and invest your savings at a 5% return, you can be a millionaire in 36 years. To put that number in perspective, if you start that savings at 25 years old, you can retire comfortably with a $1 million USD net worth at age 61. Now, what if you saved more aggressively earlier in life, say $20,000 USD per year (or about $1,700 USD a month)? Investing those savings at the same 5% return, you can hit the $1 million USD mark in 25 years, or by the time you’re 50 years old. And if you’re older than 25 years old, you’re not too late.
It’s never too late to start investing, though, the later you start investing your savings, the more you’ll have to save each month to hit that $1 million USD target (or however much you want to reach). For instance, if you started investing in a portfolio with a 6% annual return at 25 years old, you only need to invest $490 USD a month to retire as a millionaire at 65. But if you wait until you’re 35, you’ll need to save more than double that amount.
Even if you’re earning a lot of money right now, you should have a system in place where you’re putting a portion of that money away to build your wealth so that you can enjoy the flexibility and freedom that comes with a comfortable retirement. No one is too wealthy not to invest his or her savings. Plus, not putting your money to work can cost you more than you think.
The decisions you make today and tomorrow can influence your financial wellbeing. Set yourself up by clearing your debt, setting up the right safety nets to manage your risk, finding ways to increase your income, and putting your money to work.