Imagine never having to worry about money again. It sounds like a pipe dream, but it’s achievable, and you don’t have to be rich to do it. The formula for establishing financial stability and building wealth is simple, although it’s not always easy to do. However, if you take each of the below actions, you can achieve that security.
Get Out of Debt
As long as you owe money to someone else, your money isn’t your own. In general, you should aim to carry little to no debt. How far people take this will vary from person to person. You may not be able to pay cash for your vehicle, and there can be advantages to paying off a mortgage later rather than sooner. However, your goal should be to owe as little money as possible.
Investing is your key to wealth building, but don’t assume that you need a huge lump sum to get started. Even if it’s real estate investing that you’re interested in, you may be able to use dollar cost averaging to reduce risk and spread out your investment over time. You can pick up DCA as a beginner; you don’t need any special knowledge, whether real estate interests you or something else, such as an IRA or a brokerage account. You can review a guide on the pros and cons of dollar cost averaging and how it works.
Save Toward Retirement
One type of investing you may already be doing slowly is putting money in your retirement account, and if you aren’t already, you should start today. If your employer sponsors it and offers matching funds, try to max out your contributions. Thanks to compounding returns, if you are young, just a decade of retirement savings can grow to an enormous amount in the years ahead. While you may sometimes be tempted to borrow from your retirement account or make early withdrawals in response to other financial pressures, this money is best left to grow.
Have Emergency Savings
Many people have that feeling of never being able to get ahead because they have been knocked off kilter every time an unexpected expense arises. Unexpected is not the right word here because while you might not know precisely what the expense will be, you should be prepared for the fact that cars need repairing, pets get sick, jobs can dry up, and other emergencies can occur that require you to have some cash in reserve above and beyond what you’ve budgeted for
Emergency savings means efficiently handling something that otherwise would, at best, mean racking up high-interest credit card debt and, at worst, be a natural disaster for you and your family. Your emergency savings should be in a savings account, a money market account, or another form that you can access easily. It should consist of at least three to six months of essential expenses. You can build up this fund over time.