Featured, Finance

10 Steps to Building Wealth

Posted on Wednesday, July 4th, 2018 at 9:00 am

 

Even if you simply want to spend time with loved ones, you’ll need the financial security to free up that time. The following 10 tips will provide you with key pointers on how you can build your wealth.

Cut Your Expenses

Analyze all your current expenses and decide on what you need and what you don’t. Ask yourself if you still need your monthly gym membership, your premium phone plan, car insurance, credit card, homeowner’s or renter’s insurance, etc. This will allow you to seal any unnecessary leaks in your cash flow. Have a look at things like subscriptions to streaming services. Are you paying for Spotify or Netflix but barely watch anything or only listening to a couple of specific artists? If so, cancel your subscriptions. Continue to inspect your monthly or annual fees in this way by comparing actual usage to value. This will help you filter out any unnecessary services and cut your expenses.

Stick to a Budget

Having a budget is crucial to saving money. If you have trouble sticking to a budget, keep it simple and easy-to-follow each day. Start off by reducing your regular paycheque by the amount of your retirement contributions or any employer sponsorship. Aim to keep your expenses such as transportation, housing, and groceries at no more than 50% of your monthly pay. Aim to assign at least 20% of your pay towards your financial goals. Finally, use no more than the remaining 30% for your weekly allowance. You can calculate this by dividing the 30% of your monthly income by 4.3 to get the weekly amount. Be sure to plan ahead so you know how you’ll spend your weekly allowance. This will prevent you from overspending and keep you on track.

Create a Debt Plan

Don’t beat yourself up over your credit card debt or your student loan. Instead, focus on creating a plan to clear your debt. As long as you follow that path, you’ll avoid going in the red and pay off your debt over time. To do this, create a list of all your debts from the highest interest rate to the lowest, and also note their minimum monthly payments. Start paying the most you can afford on the one with the highest interest. Then use the rest of your allotted money to pay off the minimum payments on the debts with lower interest. Once you finish paying off debt with the highest interest, move to the second-highest and repeat the process.

Make More Money

This is obviously easier said than done, but try to earn as much money as you can, any way you can, to get out of debt quickly. Try requesting a raise from your boss, or if you do freelance work, increase your rates. You can also try taking up a side job to put some extra cash in your pocket. Try finding a part-time position, take on freelance jobs, look into becoming an Uber driver, or even sell some of your unneeded stuff online. Doing this will help you earn some extra income and allow you to keep paying off your debt.

Distribute Your Savings

Once you’ve begun to get a handle on your debt, you can start to focus on your savings and retirement. Whether your priority is debt, savings, or retirement, set up an agenda that allows you to work on all three goals concurrently. Figure out what you can set aside to put towards your savings goals. This is partially dependent on what your savings or retirement goals are, and how much you can spare of the 20% of income dedicated to those goals mentioned in Step 2.

Keep a Savings Reminder

Sometimes we end up spending irresponsibly because we’re bad at delaying gratification. You might lose sight of why you’re saving and make a spontaneous – and costly – purchase. To combat this urge, remind yourself why you’re saving. Keep a visual reminder, such as a picture of your dream car in your wallet, or put a photo of your dream house on your fridge or desk. Any reminder will help – and will keep you from breaking your budget rules.

Benefits

Selecting a retirement plan will help you build wealth, achieve your goals and lifestyle plans, and identify the age you want to stop working. Try to contribute as much as you can to your RRSP or separate retirement fund to ensure that you get the most out of your retirement plan.

Plan Out Your Retirement

It’s important to manage your money so that you can enjoy your retirement years. Your plan should balance your needs, wants, and your financial reality. How much you need to save depends on factors like your age and lifestyle, and when you start saving makes a big difference in how much you need to set aside. Thanks to compounding, the younger you are, the less you’ll need to put aside. Your lifestyle will also play a role on the amount you’ll need to save, as it affects what you want to do when you retire, whether it’s travelling the world or just maintaining a comfortable life.

Pay Bills on Time

Maintaining a good credit score is crucial as you work to build your wealth and strive to achieve your goals. This will allow you to use your savings for things like buying a house or a car. It’s important to avoid late payments and missed due dates because it will affect your credit rating. You can build your credit score by setting up automatic bill payments, using bill-reminder services like Prism, or simply writing down reminders on a calendar yourself.

Check Your Credit

In order to avoid identity theft, it’s essential to check your credit score regularly. There are three major credit bureaus, TransUnion, Equifax and Experian, that are required to offer consumers one free credit report a year. It’s a good idea to take advantage of this, both to ensure that your identity hasn’t been stolen, and to have an idea of what your credit rating and history is like.

Overall, building your wealth isn’t easy. It requires hard work, dedication, and most importantly, patience. If you follow these tips for a year, you’ll see a big difference in your net worth. Continue along the path and you’ll be well on your way to building your wealth and achieving your financial goals.

Kevin Nwankwo | Contributing Writer

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