Building wealth might sound intimidating, especially when you’re just starting your career and possibly juggling student loans. But here’s the good news—it’s not as hard as it sounds. With some smart strategies and consistency, young people can set themselves up for financial success. So, whether you’re just starting out or you’ve been in the workforce for a few years, this guide will help you make savvy moves to better build your wealth.
Start with a Budget
Before you can build wealth, you need to know where your money is going. A budget helps you track your income and expenses, so you can see how much you can save and invest each month. It doesn’t have to be complicated. Use simple tools like Google Sheets, a budgeting app like YNAB, or even a notepad to list:
- Income: Your paycheck, side gigs, etc.
- Expenses: Rent, groceries, entertainment, and those pesky subscriptions.
The goal is to have some money left over after covering your needs. That surplus is the key to building wealth.
Build an Emergency Fund
Before you dive deep into investing, make sure you have an emergency fund. Life happens—car repairs, medical bills, or even a sudden job loss. Having 3-6 months of living expenses saved in an easily accessible account (like a money market) can protect you from financial disaster and keep you from going into debt when life throws you a curveball.
Leverage compounding interest
The earlier you start investing, the better. Time is one of the most powerful tools you have for building wealth, thanks to something called compound interest. In simple terms, compound interest is when your money earns interest, and then you earn interest on that interest. Over time, this snowball effect can significantly grow your wealth.
How to start investing:
- 401(k) or 403(b): If your employer offers a retirement plan, take advantage of it, especially if they match your contributions. That’s free money.
- Roth IRA: This is another great option for young people because your contributions grow tax-free, and you won’t have to pay taxes when you withdraw them in retirement.
- Index Funds or ETFs: These are great for beginner investors because they’re diversified and have low fees.
Let’s use an example. Let’s say a teenager has a part-time job, they’re able to put up to approximately six thousand dollars into a Roth IRA. At that point, the money starts to accumulate interest. Since they’re doing this So before turning 20, they’ll double that money by the time they’re 30. As you can see, leveraging the power of compounding interest at a young age makes a big difference in building wealth for the long term.
Develop Multiple Streams of Income
Building wealth isn’t just about saving what you have; it’s also about increasing what you make. Having multiple streams of income is a smart way to grow wealth over time. Here are some ideas:
Invest in Real Estate
If you can afford it, consider buying rental properties. Young people who have just graduated college or are working in a trade should consider buying a rental property or better yet a three-family home. That way they can live in one unit and rent out the other two!
It’s important to note there are drawbacks with this method. You’ll need to have enough money to maintain the property. If you’re handy and can do the upkeep yourself, that’s a bonus. You’ll just need to carve out the time to address any issues that arise. In any case, don’t bite off more than you can chew. Ensure you have enough money for your mortgage payment and extra cash for maintenance and upkeep costs. Or make sure you have enough free time to take on maintenance projects yourself.
Become an Entrepreneur
Over the years, we’ve consistently seen that the people who generate the most wealth are those individuals who own their own businesses. Remember, this doesn’t mean always starting from scratch. Another alternative is to buy an established business, which may result in fewer headaches. The reality is entrepreneurship isn’t easy and it’s not for everyone. But if you’re able to do it and do it well, you can make significant amounts of money.
Continually invest in yourself
Young people should continuously invest in themselves because personal growth is one of the most valuable assets they can cultivate. Whether through education, learning new skills, or expanding their network, self-investment pays lifelong dividends. This could mean taking courses to advance in your career, learning about financial literacy, how to take advantage of AI or developing soft skills like communication and leadership. By consistently upgrading your knowledge and abilities, you increase your earning potential, open up new opportunities, and set yourself apart in a competitive world. The more you invest in yourself, the better equipped you’ll be to adapt, succeed, and thrive over the long term.
Conclusion
Building wealth as a young person is all about starting early, making smart money choices, and staying disciplined. It might feel slow at first, but with consistency and a solid strategy, you’ll be well on your way to financial freedom. Whether you’re paying off debt, saving for a house, or planning for retirement, remember that every step you take is bringing you closer to your financial goals.
In addition, consider meeting with a financial expert who can help tailor some of these ideas to your specific financial situation and help you understand what will work best for you!
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