Creating wealth and achieving financial freedom takes determination and consistency. Many people assume that becoming reach is impossible and takes a ton of luck. Other people believe that it takes money to make more money.
Still, many people attribute earning wealth to putting in enough hard work. The truth is: you have to be willing to work smarter rather than harder if you really want to see results. Keep reading to discover 7 proven ways to build wealth and gain financial freedom.
1. Limit Personal Spending and Control Lifestyle Expenses
Not knowing how to limit your personal spending and control your lifestyle inflation are the biggest reasons why 76 percent of Americans are still living paycheck to paycheck. This happens when people are spending every dollar that they’re making.
The best way to combat this is by simply cutting back on spending so that they’re spending less than what they’re earning.
The money you have leftover from this is where the wealth accumulation comes in. Spending less than what you earn is the key to every financially successful person’s financial freedom. The lower your spending is, the faster this can happen to you too.
For example, if you save 10 percent of your income, you’re removing the bottom 10 percent of your spending. This is the 10 percent that is the least important and the easiest to waste your income on. However, if you start saving that 10 percent, you now have the money you can use to get rid of debts, invest, and creating wealth.
2. Aim to Maximize Personal Income
Next to spending less than you earn is working hard to increase your income. The more money you earn, the more resources you accumulate and have at your disposal. The best way to build wealth is to focus on your career and how you can earn more year after year.
You should create a personal goal to become the best at your job and level up in your career. Rather than focusing on putting in more hours for more money, focus on giving it your all so you can make money smarter instead of harder. At the same time, you should consider entrepreneurship in your spare time so you can earn money on the side.
Side businesses can help you earn a lot of money that can ultimately take the place of your full-time job. The goal of diversifying your income is to improve your personal income. Pairing that with spending less money is a sure way to build wealth in no time.
3. Get Rid of High-Interest Debt
Whenever you have leftover money, the first thing you should do with it is to pay off any high-interest debt. If you have interest rates higher than 8 percent, you should focus on paying down those debts the fastest. That includes credit cards, payday loans, student loans, and occasionally, car loans.
Having debts with high-interest rates eats away at your money. Essentially, you’re giving your money away for virtually nothing in return. Amassing wealth will prove to be a lot harder if you continue buying things sooner than you can actually afford them.
Try making the minimum payments on all of your debts then add the biggest extra payment possible to any high-interest debt. That balance will go down sooner than you thought. That way, you can move onto the next debt and repeat the same process until you are 100 percent debt-free.
4. Invest in Tax-Advantaged Accounts
One of our favorite wealth building tips is to use a tax-advantaged account to invest in. The government encourages you to minimize how much you pay in taxes simply by opening a 401(k) or Roth IRA. Both accounts can benefit you greatly and are worth the consideration.
When you have a 401(k) at work, it prevents you from paying taxes all year on any of the money you contribute. Your overall taxes get lowered for the year, which means that for every dollar you add to your account, your annual income tax bill goes down as well. That’s extra money for you to put into your pocket.
A Roth IRA is the opposite: you only put money that you’ve already paid taxes on into the account. Once you’re retired and take the money out, you won’t owe anything in income taxes. That includes the investment gains you’ve earned along the way.
5. Make Use of Free Money
There are employers who offer free money to their employees for making the right decisions. So, how is wealth created, you ask? Your employer could match contributions into your 401(k) which is basically free money.
By grabbing this free contribution, you can make use of every dime you earn. Consider it an easy pay raise without any ultimatums. If you aren’t sure if your employer offers something like this, simply speak with your Human Resources department and ask!
6. Reinvest Your Dividends and Other Investment Income
Once you follow the first 5 steps, you’ll be on the path to being debt-free and being accustomed to spending less than you earn. This is the position you should be in if you truly want wealth accumulation. So if you’ve reached this point, you should have a good amount of money to invest every month — here’s how to invest it.
You can consider various things such as buying rental properties (check out this article for tips), buying stocks or investing in yourself by getting a better education in order to make more money. No matter the direction you take, your investment will eventually return money to you. That’s when you take the income you’ve earned thanks to your investment and begin reinvesting it.
Instead of keeping the rent checks or spending money earned from stocks, reinvest it into your next rental property or the next stock. This is how you create an investment snowball and continue contributing to your ultimate wealth. As your contributions increase, so does your ability to be financially free of any future debts.
7. Always Invest Your Windfalls
Let’s say life dumps some money onto your lap via the passing of an older relative or by winning a prize. This is the ultimate opportunity to get rid of any leftover debt. Use this money to accelerate your personal business or goal to own a rental property.
Windfalls are blessings in disguise and shouldn’t be wasted — if unexpected money comes your way, invest it and do not spend it!
Creating Wealth Is Easier Than You Think
As you can see, there isn’t one sure way to start creating wealth and becoming financially independent. The key takeaways here are to spend less than you earn, avoid any lifestyle inflation, and know what to invest in. Once you lay down the foundation for building wealth, everything else will follow!
Best of luck!