Automate your savings
Saving money is something that most people struggle to do. One of the best strategies to save money is to make it automatic. When you automate your savings, you are more likely to make saving a consistent priority and see your savings grow.: You may schedule automatic recurring transfers from your checking to your savings account, or your employer may allow you to deposit a portion of every paycheck directly into a savings account. There are also programs that automatically round up your purchases to the nearest dollar and transfer your spare change into a savings or investment account.
Buy Dividend-Paying Stocks
Dividend-paying stocks may seem like a slow and boring way to build wealth, but they are one of the best ways to tap into a solid and growing source of income, and capital gains as well. The so-called “Dividend Aristocrats” are large, well-known companies in the S&P 500 index, like Coca-Cola and McDonald’s, that have raised their dividends for at least 25 years in a row. This means that those who bought these companies 25 years ago are earning huge effective yields on their original investment amount. Combined with the potential for capital gains, the Dividend Aristocrats can be a great way to build wealth.
Increase Your Income
The first thing you need to do is start making money. This step may seem elementary but is the most fundamental one for those who are just starting out. You’ve probably seen charts showing that a small amount of money regularly saved and allowed to compound over time eventually can grow into a substantial sum.There are two basic ways of making money: through earned income or passive income. Earned income comes from what you do for a living, while passive income is derived from investments. You may not have any passive income until you’ve earned enough money to begin investing.
Invest
Once you’ve managed to set aside some money, the next step is investing it so that it will grow. Money put in savings is important, but the interest rates credited on deposit accounts tend to be very low, and your cash risks losing purchasing power over time to inflation.Mutual funds provide some built-in diversification because they invest in many different securities. And you’ll achieve greater diversification if you invest in both a stock fund and a bond fund (or several stock funds and several bond funds), for example, rather than in just one or the other.
Minimize the Impact of Taxes
Taxes are an often-overlooked drag on your wealth-building efforts. Of course, we are all subject to income tax and sales tax as we earn and spend money, but our investments and assets can also be taxed. That’s why it is essential to understand your tax exposures and develop strategies to minimize their impact.