You can create personal wealth. It’s possible to meet your financial goals. By choosing to budget, save and invest, you can pay off debt, send your child to college, buy a comfortable home, start a business, save for retirement, and put money away for a rainy day. Through budgeting, saving, and investing, building credit, and controlling debt, all these goals are within your reach.
Some people consider themselves wealthy because they live in a very expensive house and travel around the world. Others believe they are wealthy simply because they’re able to pay their bills on itme. What we are talking about here is financial wealth and what it means to you.
Building wealth requires having the right information, planning, and making good choices.
Assets – Liabilities = Net worth
A wealth-creating asset is a possession that generally increases in value or provides a return, such as:
- A savings account.
- A retirement plan.
- Stocks and bonds.
- A house.
Some possessions (like your car, household furnishings and clothes) are assets, but they aren’t wealth-creating assets because they don’t earn money or increase in value.
A liability, also called debt, is money you owe, such as:
- A home mortgage.
- Credit Card Balances.
- A car loan.
- Hospital and other medical bills.
- Student loans.
Net worth is the difference between your assets (what you own) and your liabilities (what you owe). You net worth is your wealth.
Set Financial Goals
Most people who have built wealth didn’t do so overnight. They got wealthy buy setting goals and pushing themselves to reach them.
A personal wealth-creation strategy is based on specific goals. In preparing your goals:
- Be realistic.
- Establish time frames.
- Devise a plan.
- Be flexible; goals can change.
Develop a Budget and Live by It.
When it comes to reaching your financial goals, are you doing or wishing? The difference is doers put action to their goals. And doers are much more likely to reach their goals and achieve their goals and achieve their dreams.
Save and Invest
You have budgeted and identified and amount to save monthly. Where are you going to put your savings? By investing, you put the money you save to work making more money and increasing your wealth. An investment is anything you acquire for future income or benefit. Investments increase by generating income (interest or dividends) or by growing (appreciating) in value. Income earned from your investments and any appreciation in the value of our investments increase your wealth.
Get Guidance – There is an art to choosing ways to invest your savings. Good investments will make money; bad investments will cost money. Do your homework. Gather as much information as you can. Seek advice from licensed or registered advisers. States require licensing or registration for brokers, investment advisers and insurance salespeople, so check with your state securities regulator before trusting any investment adviser.
Take Advantage of Compound Interest – Compound interest helps you build wealth faster. Interest is paid on previously earned interest as well as on the original deposit or investment.
Understand the Risk-Return Relationship – When you are saving and investing, the amount of expected return is based on the amount of risk you take with your money. Generally, the higher the expected return, the higher the risk of losing money. For less risk, an investor will expect a smaller return.
Building Credit and Control Debt
Your Credit History Is Important – It’s difficult to pay cash for your car, home, college education, so these are typically bought using credit. That is why it’s important to have a plan to build and maintain a good credit history. Good credit saves money, bad credit costs money.
A good credit history will result in getting the lowest interest rates for loans and other services, which will put you in a better position to increase your savings and increase your wealth.
Guard Your Identity
- Shred or destroy your bank or credit card statements and all other private records before tossing them in the trash.
- Give out your Social Security number only when necessary, and never carry your Social Security card and driver’s license in your wallet.
- Pick up mail promptly from your mailbox, and never leave outgoing mail with paid bills in an unsecured mailbox.
- Don’t give out personal information on the phone, through the mail or on the internet unless you are sure you know with whom you’re dealing.