Do you ever wonder how the rich get to where they are?
It all starts about building wealth, and you can do it from scratch. In fact, it’s never too early to start thinking about it.
When I was in my early 20s, I was only focused on having a stable job that could carry me through every month. I was perfectly happy with having a little leftover money that I could use for eating out, traveling, and little purchases here and there. As I got older, I realized how important it is to think long term. And while I’m not quite there yet, I’m taking the initial steps to reaching a more comfortable lifestyle.
The thought about building wealth from scratch can be overwhelming. How do people become millionaires? How do they get to retire early? Where should you start? Thankfully, we’re in the digital age and we now have the wisdom of people who’d been there at our fingertips. There are numerous resources you can find — including books on personal finances, podcasts, and discussions with real people on achieving financial independence, debt management, and more.
Here are the first steps you may want to consider to start building your wealth.
1. Build a budget
There is no get-rich-quick in personal finance. To start building your wealth, start with the basics — creating a budget. Learn how much your expenses and savings are every month and then create a budget summary.
The key here is to have a positive cash flow = more money coming in than going out.
Based on your budget summary, you may need to explore various topics including how to reduce your expenses, how to increase your earnings, different approaches to handling cash flow, and so on.
If you aren’t sure where to start when it comes to building a budget, don’t worry! There are tons of online templates that you can download, which varies in design and complexity depending on what you are looking for.
2. Start an emergency fund
An emergency fund is an absolute must-have.
Even if you are doing well now, you never know when a financial trouble will strike. You could get laid off, get diagnosed with a serious illness, encounter an accident, or deal with unexpected expenses like house or car repair. This is why it’s important to have sufficient savings that you can tap into in times of need.
The general consensus is to have 3-6 months worth of expenses for an emergency fund. If you’re really tight on money, aim for at least a month worth for emergency. This will not only help you in the unforeseeable future, it will also keep you from selling important assets and borrowing money and — more importantly — give you peace of mind.
In case of lack of emergency funds, have a ready list of reputable resources that you can approach for a short-term financial solution.
3. Get rid of debts
It’s best to have a good financial standing before you plan on making significant investments and purchases. Hence, you need to deal with existing debts.
If you are using your credit card, it’s best to pay your bill in full and before the due date to avoid accrued interests. If you have a huge credit card bill that you’re struggling to pay, don’t run away. Instead, approach the bank to explain your situation and oftentimes they can help arrange a better payment plan.
If you have loans from multiple sources, devise a plan on how you can pay off these loans. One recommended method is the avalanche approach — which is dealing with the highest-interest loans first so you can save on interest payments.
4. Increase your monthly net income
One of your goals should be increasing your monthly net income — whether as an employee or a business owner. It really depends on what your interests are. Some people are perfectly happy working in a corporate setup, while others prefer being their own boss.
If you’re an employee, always look for ways to increase your value. Learn how to upskill in terms of soft and hard skills, build relationships with people, find a mentor that can guide you if you can, and be familiar about the job market.
I used to work as a programmer in the IT industry, and in our case, frequently changing jobs is actually an effective way to significantly drive up your salary compared to staying in one company and waiting for a raise. Nowadays, the same can be said for other professions.
Aside from increasing your corporate salary, there are also opportunities in freelancing gigs and side hustles.
On the other hand, you might be interested in starting your own business. I believe there are better resources that can talk about starting a successful business, but I’d still like to give my thoughts on the matter. One thing that I noticed from people who’ve failed in their start-ups is they start their business based on a fad, and when that fad dies down, their business crumbles as well. This is particularly true for restaurants — people start a food business based on a trend instead of building a menu that customers will go back to again and again.
It might also surprise you that a lot of stable businesses earning up to seven digits monthly are the ones that take on mundane but essential tasks, such as renting out spaces for commercial establishments, supplying items to hotels and restaurants, and even waste recycling.
These are just traditional business ideas. Today, social media has also graced us with new forms of businesses. Dropshipping is a new way to sell items without the usual investment expenses on supplies. Facebook and Tiktok users who have huge following also use affiliate marketing to promote products.
Case in point, in today’s age you can find different ways to increase your monthly earnings.
5. Invest, invest, invest
The gold formula for building your wealth is to reduce your expenses, increase your earnings, and invest — whether it’s properties, stocks, and even crypto.
Investing is a long-term game, and like everything else, you need to educate yourself so you can choose your investments wisely. Set aside a portion of your earnings to invest consistently. Don’t just throw money in a company because you see everyone else doing it. The safe way is to learn how to choose good companies that are still undervalued.
Along the way, you’ll encounter mistakes. It happens to everyone. The important things is to have a diversified portfolio to secure your money and guarantee profits in the long run.
6. Keep other financial goals in mind
Keep your eyes straight on the goal, but remember that there are other important things aside from increasing your net worth. You may be interested in purchasing a home or other properties, starting a college fund for your children, and — one thing that is often overlooked — having insurance.
A health insurance will make sure that you hospital bills are covered in cases of critical illnesses, accidents, and more. If you have dependents, a life insurance will give them financial support in case of your passing.
7. Continue your financial education
Financial literacy is extremely important and you want to make sure that you have proper knowledge to make the right decisions.
Check out books like Rich Dad, Poor Dad by Robert Kiyosaki, Learn to Earn by John Rothchild and Peter Lynch, The Millionaire Next Door by Thomas J. Stanley, and more. Attend wealth seminars. Lastly, while you can get tons of advice from strangers in the internet, it doesn’t hurt to turn to a financial advisor for expert advice dealing with your personal situation.
What are your tips on building wealth? Let us know in the comments section below!
Get discounts on your travels!
Enjoy discounts with KLOOK using our promo code: TARALETSANYWHERE
Katherine Cortes is a long-time backpacker and a freelance writer/editor. She likes beaches, snorkeling trips, and relaxing staycations (preferably with bath tubs!).