Today we are keeping it simple and discussing 3 simple ways to consistently increase wealth.
Almost everyone’s primary goal in their working life is to increase their wealth.
The sooner wealth reaches a certain level, the sooner financial independence becomes a reality. Retirement also becomes an option when wealth reaches a certain level.
Whether it’s through saving more, earning more, investing more, or a combination of all three, increasing wealth is something that gets a lot of attention in personal finance – and rightfully so.
Here are 3 simple ways that each and every person can consistently increase wealth.
1) Have a Positive Savings rate
Having a positive savings rate is one of the most important financial principles to understand. This has been difficult for millennials recently, as they are currently as a whole are spending more than they earn. From the WSJ:
Adults under age 35—the so-called millennial generation—currently have a savings rate of negative 2%, meaning they are burning through their assets or going into debt, according to Moody’s Analytics. That compares with a positive savings rate of about 3% for those age 35 to 44, 6% for those 45 to 54, and 13% for those 55 and older.
One of the reasons for the negative savings rate is the relatively high level of student loan debt, which has surpassed $1 trillion. Many who go through college will need to take out loans, but hopefully this will result in a long-term increase in earnings that more than compensates for short-term debt.
It’s most important to have a positive savings rate once a career has started. While there may be chances for increased future earnings potential for many graduates, they should stick to living within their means until those increased future earnings materialize.
Consistently saving money will allow for long-term wealth creation. Not only will practicing this principle help with avoiding high interest debt, it will also help with investing consistently, which is my next suggestion for consistently increasing wealth.
2) Invest Consistently
Investing consistently is essential for consistently increasing wealth. The easiest way to do this is to automatically have money taken out of each paycheck and put into your 401(k) retirement account. Many companies offer matching contributions, giving employees even more incentive to set up automatic 401(k) deposits.
If you don’t have a 401(k) account or want to invest in additional ways, consider setting up an IRA or investing through an individual retirement account. These can be set up through a variety of brokerages, but a few attractive options are:
- E*Trade – E*Trade offers free trades the first 60 days after opening an account. There is also no minimum balance required. Trades are $9.95 per trade.
- Scottrade – Scottrade offers $7 trades. Additionally Scottrade has many local offices where investors can meet in-person with an investment consultant.
- TradeKing – TradeKing boasts one of the lowest costs per trade in the industry. They charge just $4.95 to execute a stock trade.
There has never been more options for getting started with investing. Even contributing $100 a month to an individual investment account can help increase wealth over time.
3) Diversify your Investments
Diversification. We’ve all heard about it a million times, but do we really follow through and make sure that our investments are diversified?
Many people are overexposed to one or more investments. How many people went bankrupt when the housing market crashed? How many new investors jump into individual stock investing and have over 10% of their investments in one stock?
If the goal is to consistently increase wealth, diversification is a necessity. Practically all investments go through periods of growth and retraction. An individual investor needs to be thoroughly diversified to avoid having their portfolio devastated by a down cycle or even worse, a bankruptcy.
One way to stay diversified is to invest in a variety of “motifs” on Motif Investing. Motif Investing allows investors to create “motifs” of up to 30 stocks. Investors can also invest in motifs that other people have created. This allows investors to gain exposure to an entire basket of stocks for only $9.95 (per trade) and a minimum investment of $250. My goal in the new year is to invest $1,000 in motifs every four months.
What is your plan for consistently increasing wealth? Have you started your career or are you currently investing in yourself to increase future earning potential?
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Photo by Adarsh Thakuri
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This is a great 3-step approach. It’s so important to start investing early! Even if you only have a small amount to invest initially, do it! That’s what Mr. FW and I did and we’re so thankful we did. And saving as much as you can will, of course, just give you more money to invest. So, it’s really a virtuous cycle.
Investing early is key. Also, yes as you mentioned, for a young professional the higherst ROI might be to invest in yourself (more schooling, certs, etc.).
These are all great steps DC especially if they’re done early to really maximize their effectiveness. We’re doing all three, of course, while continuing to scale our business so we can make even more and thus more to invest. :)
Mrs. Frugalwoods That’s why I’m such a big advocate of automating your investments and savings. It allows you to take the “thinking” out of it and have your funds increase over time.
taylorqlee Definitely, which is a big point that people miss. There’s a reason people invest in themselves by going to college. Not all debt is bad debt.
FrugalRules Increasing income can be a big win from an investment standpoint. If you already earn more than you spend that incremental gain can be thrown into investments.
Live below your means and save money. It’s really basic and sadly we have a negative 2% savings rate. That’s a scary future. And investing is also important…too many people are scared off by the stock market and keep everything in the bank. It’s not growing much when you put it there!
Andrew LivingRichCheaply I wonder how much that -2% was skewed by college students, though? I mean, most college students – grads and undergrads – probably have a negative savings rate. The statistic fit well with the post but I would have liked to see what 18-25 is versus the other half of the “millennial” demographic.
It’s unfortunate when people are scared to invest because if you aren’t investing money you are losing it due to inflation (not even counting missed gains). I can see why people in their 40s and 50s were scared off by the recession, though.
Hey DC cool article here and very timely just on the verge of Christmas.
I agree with the 3 tips although have mixed feelings on diversification having heard some information about how those who become wealthy end up doing so by focusing on one asset class i.e. property.. Having said this diversification can also be about doing this within an asset class i.e. with shares not putting 100% of your funds into one stock, which is what you are talking about above..
My plan is to focus on the goals that I want to achieve, the mindset is key for me to achieving the goals or the why, which will keep you on track rather than buying a $3000 TV that you probably don’t really need :)
mycareercrusade I hear you about diversification. I think for the “average” investor, i.e. someone not trying to become extremely wealthy but instead trying to make enough to retire comfortably, it makes sense to spread your bets between various asset classes. I’m with you about pursuing goals. I think it’s a good thing for people to be focused on, especially in their 20s.
Agree wholeheartedly on starting a positive savings rate early on. Once you get into the habit of saving, it just becomes easier as time goes on, which means when you make more money, there is no need to “figure out” how to save. Just save or invest your new earnings and carry on happily!
thebrokeprof Yeah that’s a great point. I am not opposed to lifestyle inflation when income increases (seems like 99% of bloggers are), but if you can keep your savings rate positive early on you will be better off long-term.
This is definitely something I need to start working on. I have the positive savings, though admittedly it’s not much. Investing confuses/intimidates me but it’s also something I should start considering!
skyvsworld I hear you, investing is something that can be intimidating. It’s something I’ve been slowly easing into and I look forward to learning more in the new year.