Connect with us

Hi, what are you looking for?

Financial Wellness

Building Wealth: A Beginner’s Guide to Securing Your Financial Future

Building wealth doesn’t happen overnight. It takes hard work to achieve, but it’s not impossible. There are some tried and true methods that have helped secure the financial futures of lots of people from all walks of life.  

Set Yourself Up To Build Wealth

A college degree is still one of the biggest keys to financial security. According to the balance, the average American with a bachelor’s degree will earn approximately $2.1 million in their lifetime. 

If a college degree is out of the question, do everything within your power to increase your earning potential, such as:

  • Take relevant training courses in your field
  • Get certified in your profession or trade
  • Make yourself indispensable on the job
  • Work for an employer that offers good benefits, such as health insurance and a 401(k)

As Investopedia notes, earning money is the first step toward building wealth. 

building wealth

Identify Your Financial Goals

Think about why you want to start building wealth. Do you want to be able to buy a home, live a more worry-free life, start your own business, buy a second home, retire early, or retire more comfortably? 

The Federal Reserve Bank of Dallas’ wealth primer points out that, “Most people who have built wealth didn’t do so overnight. They got wealthy by setting goals and pushing themselves to reach them.” Use their four suggestions for setting your financial goals:

  1. Be realistic
  2. Establish time frames
  3. Devise a plan
  4. Be flexible as goals can change

Designate Your Income

Once you’re making money, it’s important to intentionally think about where every dollar is going. All guides to building wealth advise living below your means. In order to do that, you have to create and live by a budget

As part of that budget, you need to set aside a portion of your income for savings, Investopedia’s second step to wealth. Shoot for saving 20 percent of your income. If that’s too much right now, start at a lower rate, but make a goal of increasing your savings rate every year until you’re setting aside enough money to make your financial goals a reality. 

Follow NerdWallet’s advice and automatically direct a portion of your paycheck into savings. This ensures you’re setting money aside “no matter what’s happening in your life or in the world.” 

Start Investing Early and Often

The third step to building wealth after earning and saving money is investing it. Once you’ve built up an emergency fund in an FDIC-insured bank account, then you can start directing some or all of the money you’ve budgeted for savings into a wealth-creating asset, which can be a house, mutual fund, and/or other investments. 

The easiest place to start is with your employer’s 401(k) plan. In addition to providing you with a variety of vetted mutual fund options, many employers match 401(k) contributions up to an average of four to five percent of your salary. Best of all, your contributions are taken out before federal and state taxes, and you only pay tax on your earnings when you withdraw from your account. If that takes place when you’re in retirement (and in a lower tax bracket), you’ll pay even less tax.   

Traditional and Roth IRAs are two other tax-advantaged investment vehicles to consider.  

Three final tips for making the most of your investing dollar:

  1. Reinvest your dividends and capital gains
  2. Diversify your portfolio or choose a target fund that handles it for you
  3. Stay in it for the long haul and don’t panic when the market drops

Protect Your Budding Wealth

Last but not least, protect your wealth by minimizing your consumer debt, frequently reviewing your goals, routinely rebalancing your investments to meet your goals, and buying adequate health, property, and life insurance. 

Very few people get rich without hard work. For the vast majority, building wealth is a long-term pursuit that ideally starts in your 20s when you have the most time and potential to secure your financial future. 

For more wealth-building information, tips, and even exercises check out the Dallas Fed’s Building Wealth workbook

Read more:

Join our mailing list

Latest

Investor Center

Today we are sharing performance data from the Prosper Portfolio for September 2021. Highlights from the report include: Performance Update In September, approximately 67%...

Credit Management

The consumer finance sector is highly competitive, and consumers often have many options to transfer and repay debt. For example, credit card companies frequently...

Credit Management

For many families, homeownership is an investment for the future. Buying a home is the largest and longest financial commitment most of us will...

Investor Center

Today we are sharing performance data from the Prosper Portfolio for August 2021. Highlights from the report include: Performance Update In August, approximately 67%...

Credit Management

Today, we are excited to announce the release of our new eBook, Your Ultimate Guide to Debt Consolidation, which is now available to download...

Home Renovations

Home renovation can be a challenging process, but financing your renovation doesn’t have to be. There are many ways to fund your home improvements,...

You May Also Like

Credit Management

Unemployed and looking for ways to borrow money? We’ll reveal what options you have when it comes to accessing emergency loans with no job.

Best Practices

Even before COVID, expensive healthcare costs had many Americans wondering what happens if you don’t pay medical bills. If you’re struggling with medical bill...

Financial Literacy

Financial literacy is the know-how to manage your money and plan for your financial future. If you’re not entirely comfortable with money or aren’t...

Finance for Homeowners

Taking out a HELOC to pay off your mortgage is a common practice among many homeowners today. Read more to find out the pros...

© 2005-2021 Prosper Funding LLC. All rights reserved.