Just start: Here’s why building wealth is all about starting.
Hi. I’m Jacob Stewart, a WealthMore wealth advisor. I’m from a low-income family. In my professional career I’ve chosen to work with clients who are interested in building wealth, especially if they may not have come from money. So, what I’ll share is my lived experience along with my experiences as a CERTIFIED FINANCIAL PLANNER™ Professional.
Where's a good place to start?
Before I answer this question it’s good to understand that wealth will typically only be created by accepting risks. However, those who don’t have wealth often can’t afford to take risks with their money, because that money goes to cover their living expenses. So, a good place to start is by putting yourself in a position to be able to afford risks.
Cash Flow
The first step would be making sure you have good cash flow. You want to see that your income exceeds your expenses. You also want to make sure you have adequate insurance (auto, renters, homeowner’s, life). This will ensure that if something happens like a car accident or damage to your apartment you aren’t going to be out thousands of dollars unexpectedly.
Savings
Next, you want to make sure you are using your surplus of income to save money. You should have an emergency fund, and save for future goals (retirement, vacations, car, etc.).
Investing/Wealth Building
Once you have these things in place it’s possible to start taking on risks without having major consequences if those risks turn into losses. I’ve seen my clients in the past do things like use their only savings to invest in a penny stock only to see that stock crash to nothing and lose the few thousand they had saved. Then a car breaks down or there is a loss of income, and they have nothing to fall back on. It always hurts to lose money, but it really hurts if that money was intended to cover a living expense or emergency situations. The wealthy can afford to take risks (and sometimes really high risks) but even if they lose the money, they will often be okay because they have adequate income and savings.
Once a person has some money saved, another general rule of thumb is to only take risks with long term savings. This would be savings that you don’t need for 5 years or more.
Any outside the box suggestions? Are there things that we might not usually think of as tgenerational “wealth builders” that could help?
Here are a few ideas for some of the principles I mentioned above.
Cash Flow: When it comes to improving cash flow there are a lot of good ways to make that happen. Also, keep in mind these are not necessarily permanent life changes and can be used until you get to a good place financially.
Lowering expenses: Housing is a big expense for most people so living with family or having roommates is always a good way to cut down on housing costs.
Decrease the amount of money you spend on things that aren’t necessities: Shop around, use coupons, find deals.
Increasing your income or compensation: Add a part time job or gig work. Increase your value to your employer by adding skills, taking on more responsibilities or getting a certification.
Savings: Try to get the highest interest rate on your emergency fund and short term savings. For long term savings consider more than just a savings account. Investing those funds in a diversified portfolio is something to consider.
Investing/Wealth Building
Once a person has good cash flow, an emergency fund and saving for future goals, they should consider how to start building their wealth. Here are a few ideas for doing that.
Invest in the market: Invest in diversified portfolios of stocks and bonds of companies that are publicly traded on the stock exchange.
Own a home: For many wealthy people, their home is typically a pretty large percentage of their overall wealth. Home ownership is one way to build wealth. A place to live is something we all need, and over the long-term homes typically go up in value. Also, with inflation the cost of renting typically goes up, but with a fixed mortgage the payment would stay the same.
Own real estate: Another idea for when you own a home is buying a duplex. This will allow you an additional income as well as a place to live. If you buy a single family home, but still want a way to make money from your investment in a home, you could rent out a room either permanently or for short-term stays.
Start a business: Many wealthy people established their wealth by owning a business. There are a lot of ways to do this. Keep in mind that the earlier you establish ownership in a business the riskier it is, but also, if it is successful, the greater the return.
There are pros and cons to all of these options so lets make that a topic for another blog post.
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