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5 Effective Ways to Build Wealth

Money doesn’t grow on trees — we all know that. But money does grow with discipline, time, goals, and a sustainable journey supporting it. With the pandemic, 2020 may have been a rough financial year, so how can you start 2021 with a fresh perspective? It’s all about sticking to a financial plan that helps you achieve your long and short term goals and dreams. It’s not always easy (or fun!), but it’s all worth it in the end.

Here are our top tips for building wealth that you can start right now. 

Create (And Stick With) A Budget/Spending Plan

The first step in any financial journey is a budget. Budgeting often gets the short end of the stick in terms of financial management, but every single person needs a budget to know what they spend versus what they save. It’s a simple concept in theory, but much more complicated in practice. 

Budgeting is anything but mundane, but sometimes it can be hard to get started. How can you get excited about budgeting? For most people, it requires a change in mindset. Instead of thinking about a budget as restrictive and rigid, think about it as a tool to help you take control of your money and build healthy habits that further your goals. Also, the word budget can often have a negative connotation to it, try calling it a spending plan.

A spending plan can help you build wealth because it encourages you to look at spending in a new way: intentionally. It puts your spending into perspective. Do you really need five streaming services? Are you overspending on restaurant meals or takeout food? Understand which expenses are helping you reach your goals, which aren’t, and make adjustments where needed.  

Put Your Goals and Values First

Your goals are the stepping stones to a successful financial plan. They are how you develop your spending, saving, and investing and they show you first hand how you're progressing.

Your goals will often look very different from your family and friends’, and that’s okay! For example, a new family who wants one spouse to stay at home will require a different financial structure than a two-income household. It’s all about what’s important and most meaningful to you.

Your financial goals need to be rooted in purpose. Do you want to retire early? Send your kids to college? Or start living debt free? It’s hard to start cutting down on your budget when you don’t have the bigger (and better) picture in mind. When your finances are aligned with your values, you begin to look at your plan more holistically and are more inclined to stay on the right path — that’s how you continuously build wealth.

Be Intentional About Debt Repayment

To put it quite simply, debt holds you back. To start building wealth, it’s critical to nail down a debt repayment plan with your financial advisor. Once you’re out of debt, you’ll be able to free up your cash flow to invest in other areas of your life like retirement, college education (529), down payment on a house, or other savings goals. 

Debt can be intimidating and make you feel like you're drowning, but there is a light at the end of the tunnel. Start by paying off your debt that accrues the highest interest and work your way down the list. Debt is one of the biggest hindrances to building wealth, so being prudent and strict with your debt repayment plan is critical (but rewarding!).

Make The Most of Retirement Savings

Are you contributing to your 401(k) or IRA? Are you putting in enough money to qualify for your company match? Are your contributions automated? If you answered no to any — or all — of these questions, it’s time to get to work.

Retirement seems years away until it’s not. Many people live at least a couple of decades in retirement, so you need enough saved to sustain your lifestyle. Save any amount you can, no matter how little. If your company offers a match up to a certain percent of your retirement contributions, take advantage of it! That’s essentially earning 100% on your savings towards your retirement.

Look to see if your plan allows for automated contributions, meaning your retirement savings will increase automatically as your salary increases or you earn a bonus. You can also automate your brokerage investments and other savings buckets! Automation is one of the easiest ways to build wealth because you don’t have to think about it or take the extra time to adjust them yourself.

Know your limits. For 2021, 401(k) contribution limits will stay at $19,500 for individuals, plus an additional $6,500 in catch-up contributions for those 50 or older. The income ranges to be eligible to make Roth IRA contributions are increasing for 2021. The income phase-out range for singles and heads of household will be $125,000 to $140,000 and for married couples filing jointly, it will be $198,000 to $208,000. 

Don’t forget: there is still time to contribute to your 2020 IRA, until April 15, 2021.

Live Below Your Means

Sometimes financial planning can be simple, but it’s not always easy. When it comes to living below your means, it’s important to control your cash flow (what’s coming in vs what’s going out). This is where creating a spending plan and understanding your spending really come into play.

Just like budgeting, living below your means might not sound enticing, but it helps you find more freedom and flexibility in your life. It means not living paycheck to paycheck or being scared to see your credit card bill every month. Living below your means gives you power over your financial health and future.  

Build Your Wealth For A Secure Future

Building your wealth takes time, patience, and determination — it’s not always easy missing a night out and sticking to your budget. It’s all about building a sustainable plan that grows with you and gets you closer to achieving your goals. 

Most people want to live a “balanced” life financially. That means that you don’t want to live like a king when working, then like a pauper when you retire. It also means you don’t want to live like a pauper when working, then like a king when you retire. It takes planning to avoid saving too much or saving too little - you need a target to maintain the right balance so you and your family will not have to make major adjustments in overall living style as the decades pass.

It is important to understand that you can’t just throw money in random accounts and hope it grows — it takes strategic planning! Our team at Pro Wealth will carefully create a unique and sustainable financial plan for you to take on the future with confidence. Take the next step in building your wealth and give our team a call today.