The American Dream has long centered on upward mobility, the idea that anyone can work hard to become successful and prosperous regardless of their origin. For many, the idea of the American dream is entwined with the fantasy of being wealthy and living in luxury. However, building wealth is no longer just a way to acquire flashy cars or mansions. For many Americans, saving a million dollars or more is a simple necessity for financial security. With the rising cost of living, including healthcare and other essentials, building wealth is your path to enjoying a comfortable and secure retirement. In this article, we’ll offer 7 tips anyone can follow to start building wealth today!
1. Start Saving
It may sound simple, but opening a savings account is one of the most important steps you can take to build wealth. If you don’t already have a personal savings account, it’s time to get one.
Once you open a savings account, set up auto transfers from your checking account. This could be once a month, every other week–whatever works for you. The point is to “set it and forget it” so that your savings will accumulate whether you’re thinking about it or not.
Compound Interest vs. APY
The principle of compounding interest is the “magic ingredient” that makes saving so important for building wealth. Compound interest means the monthly interest you earn on your savings is added to your balance. The following month, you earn interest on your balance again (including on last month’s interest payment). Compounding essentially means earning interest on interest. This helps your savings account grow faster, especially as your balance gets higher.
On the other hand, Annual Percentage Yield (APY) represents the return on your savings account over the course of a year, with compound interest taken into account. Calculating APY can help you set and reach your savings goals.
When you’re just getting started with saving, it’s best to choose a secure, FDIC-insured bank account. There are a variety of savings options for different needs and goals. CS Bank offers the following savings accounts:
- Basic Savings Accounts: Statement Savings and Kasasa Saver are beginner-friendly savings accounts with low minimum balance requirements and no service charge (or a way to avoid the service charge).
- Certificates of Deposit (CDs): CDs offer a higher-than-average rate of return in exchange for your commitment to not touching your balance for a certain period of time. Choose from different deposit amounts and term lengths.
- Money Market: This account is a hybrid of checking and savings account features. Enjoy more access to your savings while also earning a higher interest rate if you keep a higher daily balance.
2. Make A Budget
Budgeting is another key habit for building wealth. Following a budget will give you more control over your spending, so you can make sure it aligns with your values and goals. Cut unnecessary spending so you can allocate that money to saving. Work towards goals such as paying down debt.
To start budgeting, make a list of your monthly expenses and subtract that total from your monthly income. Once you’ve accounted for necessities like housing, food, and transportation, you can allocate what’s left to financial goals as well as “fun” spending.
3. Be Prepared For An Emergency
Maintaining an emergency fund allows you to manage unexpected crises and expenses without going into debt, which is the enemy of building wealth. Whether you use your first savings account or open a new one for your emergency fund, set a goal of saving at least three to six months of living expenses.
4. Save For Retirement
Building wealth is crucial if you want to enjoy a retirement without financial worry. While Social Security benefits will make up some of your income in retirement, it’s usually not enough to cover all your expenses.
The sooner you start saving for retirement, the better. This gives you more time to contribute to your retirement accounts and let compounding interest work its magic.
There are several options for retirement savings accounts. If your employer offers a 401(k) plan, you should opt in and contribute at least enough to get the full employer match. Otherwise, you’re walking away from “free money” that could support your future. 401(k)s also offer certain tax advantages.
Pay attention to requirements for “vesting,” which is when you own all of your employer’s contributions to your 401(k). You’re always fully vested in your own contributions. If you leave your job, you can roll over your 401(k) balance into an Individual Retirement Account (IRA).
You can also open an IRA on your own, either in addition or as an alternative to a 401(k). There are two types of IRAs:
- Traditional IRA: A tax-advantaged retirement savings account with tax-deductible contributions.
- Roth IRA: Subject to income restrictions, so it’s a better account to open when you’re younger and not at your peak earnings yet. Roth contributions aren’t tax-deductible, but distributions may be untaxed.
As always, talk to your tax advisor about your specific tax situation.
5. Pay Off Your Debt
Debt is one of the biggest obstacles to building wealth. While some types of debt, such as a mortgage or car loan, may be unavoidable, higher interest unsecured debt, such as credit card balances and personal loans, can quickly eat away at your income. Credit card debit in particular is hard to get out of once accumulated. The more money you have to throw at your debt, the harder it is to save and invest. Paying down your debt leaves more room in your budget to put towards growing your wealth.
If you have multiple credit card balances or other debts to pay off, it’s helpful to make a plan. Some people prefer to start with the lowest balance and throw extra money at that while making minimum payments on everything else. This is called the snowball method and gives you a quicker win. Another approach is the avalanche method, which means paying off the account with the highest interest rate first. Find more tips in our blog post on How To Lower Debt This Year.
If you have multiple credit card balances or other debts to pay off, it’s helpful to make a plan. Some people prefer to start with the lowest balance and throw extra money at that while making minimum payments on everything else. This is called the snowball method and gives you a quicker win. Another approach is the avalanche method, which means paying off the account with the highest interest rate first. Find more tips in our blog post on How To Lower Debt This Year.
Once you’ve paid off all your “bad” debt, you may want to pay down your mortgage or car loan, too. It depends on the interest rates you have on these other debts. If it’s low enough, it may not be worth it. You may get more value out of taking that extra payment amount and investing it instead. If you’re not sure, talking to a financial advisor can help you explore your options.
6. Work With A Wealth Manager
As your wealth grows, consider working with an investment manager or financial advisor. While using investment apps can be a good way to get started on your own, managing a larger portfolio often requires professional guidance. A wealth manager can provide personalized advice, helping you explore investment opportunities that align with your risk tolerance and lifestyle.
From managing portfolios to navigating market fluctuations, a financial advisor ensures your wealth is being put to work in a way that supports your long-term goals. CS Bank’s Guide to Wealth Management offers a deeper look into how a financial advisor can help you with investing, planning, and other aspects of your financial life.
From managing portfolios to navigating market fluctuations, a financial advisor ensures your wealth is being put to work in a way that supports your long-term goals. CS Bank’s Guide to Wealth Management offers a deeper look into how a financial advisor can help you with investing, planning, and other aspects of your financial life.
7. Perform An Annual Financial Checkup
As you build your wealth and your goals change, you’ll want to perform an annual financial checkup to review the state of your finances and make any needed changes to better align your budget and investments with your personal needs and savings goals. If you work with a financial advisor, they can also guide you through this process.
Check out our CSB Insights tool, available through our digital banking platform. With CSB Insights, you can get a 360 view of your finances to help with your annual checkup.
Build Your Wealth With CS Bank
Founded in Eureka Springs in 1912, CS Bank has survived various financial crises and world wars over the years. We offer a full range of personal, business, and agriculture banking services to individuals, families, and businesses in Northwest Arkansas and Cassville, MO. Need help building and managing your wealth? Contact one of our CS Investment Services advisors to learn more about how we can help you manage your portfolio and plan for the future.