Four Elements of Wealth Building - #1: Income

There are four basic elements necessary for wealth building or reaching most of our personal financial management goals.

First, we must have some form of income. For most of us, that’s employment – a wage or salary we earn for working. Any money you make by doing something for other people is called (appropriately enough) “earned income.” Whether you clock in and get paid by the hour, sit at a desk and get paid a salary, or do freelance work of some sort in which you’re paid by the job, that’s “earned income.” The alternative is “passive income,” which is what all of those nice families in 19th century books and movies have. This is income from land, investments, etc., for which you may have to do some paperwork or basic management, but you don’t earn it by picking up a shovel and digging or showing up at the shop and helping customers. It largely produces on its own, while you remain “passive.”

This can be one of the more challenging factors to impact if you’re already working full time and doing the best you can to bring home a decent paycheck. It’s still worth considering, however, if there are options you haven’t explored – a better job, working more hours, doing different work on the side, selling stuff you don’t use, etc. One of the regular topics on the Wealthry blogs and sometimes showing up on sister sites across the Goalry family of unified finance is potential ways to increase your income or reduce your spending. Even minor adjustments add up over time – another reason to stay focused on your goals for yourself and those in your care.

If you know anyone who wears a fitness tracker or enters their meals into their phone, you know that sometimes it’s not just about knowing what to do, it’s about keeping up with what we know to do. That’s why we’ve been re-imagining online money management and ways to make saving money even easier – in real time, from wherever you happen to be. An intuitive online expense manager, apps to help you categorize your spending and better visualize your budget, and other basic money management support. If a penny saved is a penny earned, then increasing our income and improving our ability to save are simply two sides of the same wealth building coin.

Four Elements of Wealth Building - #2: Debt Management

The best investment strategies in the world are of limited use if we still have the wrong sorts of debt. While some experts would argue that there is no such thing as good debt, we can all probably at least agree that some sorts are worse than others. Financing a vehicle or committing to a mortgage so your family can have a nice home is a typical part of American life, and for most of us can be a positive experience. Credit cards, medical debt, student loans, or other forms of debt, however, can be crippling.

The extra interest, penalties, fees, and overall stress associated with problematic debt almost always overwhelms whatever benefits we could be gaining from practical investments or other wealth building efforts. That’s why MOST of the time, we need to get our debt under control before we can accomplish much in terms of planning for the future.

If that seems discouraging, look at it this way – getting out of debt IS part of meeting our personal financial goals. Reducing all that interest and those fees and that drag on our credit score may feel like it’s all about paying the price for our past choices or misfortunes, but it’s more than that – debt reduction is a way of investing money. Eventually, it allows us to pursue more productive ways to invest money and to start wealth building instead of debt reducing.

If you need to deal with debt before you can do more with your personal investment goals, check out the many articles and resources on Debtry. Your situation is NOT hopeless, and you are NOT alone.

Four Elements of Wealth Building - #3: Saving

You’ve probably noticed a logical progression in the elements of wealth building. First, of course, we need a source of income – something with which to build. Then we need a plan for reducing debt, which is essentially “negative wealth.” It’s money we owe before we have it. Once we’re making some headway in that area, it’s important that we get serious about saving money.

It’s easy to tell ourselves that we can’t – that we don’t make enough, or we have too many other obligations. If that’s true, then we need a serious plan for fixing that, even if it means making some difficult adjustments to our lifestyle. Everyone should be able to save something, whether it feels like a useful amount at first or not. As with everything else, however, it’s often useful to start small and think in terms of both short and long term financial goals.

Common savings goals include things like a family or couple’s vacation, or a trip with a friend you’ve both been talking about for a long time. Maybe a new computer to replace that tired old thing you’re using now but no longer updates and sometimes makes the most unpleasant sounds. There could be a repair or minor renovation you’d like to do to your home, or a car you’ve had your eye on but don’t want to finance (or which you can’t finance because of your credit score).

Having money saving goals which are relatively modest and short-term help us establish better saving habits and improve our basic money management skills. You might find it helpful to review some of the Wealthry or Debtry blogs that talk about ways to save money in order to help you reach those goals. Some people prefer to have a separate account for specific purposes. It’s easy to open savings account online, and you’ll find many reputable online options require minimal paperwork and offer very competitive savings account rates.

• Savings Options

When weighing your options, keep in mind that any savings account is better than no savings account, as long as you’re not losing money through unnecessary fees or penalties. (There are enough good free options out there for a basic compound interest savings account that there’s absolutely no reason to pay unnecessary fees or accept unreasonable minimum balance requirements.) If you’re able to leave your money in place for a year or more, you could consider CDs or savings bonds, which offer a reasonable return on investment and can be wonderful sources for wealth building. Neither requires a major commitment or large investment and the terms are usually fairly straightforward and easy to understand.

If you’re worried you might need access to your money more quickly than that, consider a high yield savings account. Most high yield savings accounts offer better interest than traditional checking accounts while still allowing a limited number of withdrawals or transfers each year without penalties. Check out the Wealthry blogs for more ways you can make your savings more productive through low-risk, easy-to-understand investment options.

Other common savings goals are a bit more long term. Most of us would like to retire some day, but hesitate to get serious about defining retirement goals specifically or planning intentionally towards making them happen. There’s no reason not to utilize a basic online financial goal planner, especially with the amazing technology available in the 21st century to support your efforts.

Four Elements of Wealth Building - #4: Investing

This is the element most of us think of when we hear the term “wealth building.” It also sounds to many of us like something reserved for high net worth individuals – as if only the wealthiest entrepreneurs have access to the many ways to invest money, or have any reason to establish investment goals or use a financial goal planner.

In reality, that’s simply not true. Yes, most high net worth individuals draw much of their wealth from their investments, but that doesn’t mean most investors are in the uppermost category of high net worth individuals. Many of the wealthiest entrepreneurs you read about in the news or online have combined their business creativity and hard work with an appreciation for maximizing their return on investment, but that doesn’t mean you have to create Facebook or Amazon before you start defining retirement goals or practicing effective financial goal management.

You don’t have to master the stock market or subscribe to the Wall Street Journal right away in order to begin investing towards your own retirement goals or other plans for the future. Start by setting aside a few moments each week to read through the Wealthry blogs or other reputable sources for basic investment strategies and financial management tools. Yes, the earlier you set up that IRA or subscribe to your company’s 401(k), the better – but if you’re past the point that early investment is an option, start where you are now.

Even simple interest-builders like CDs or bonds are a form of investing. If you decide to dive a bit deeper, we can lay out the basics and you can invest in some mutual funds or set up a robo-advisor to invest small amounts for you and move them around as necessary. When you’re comfortable, you can explore blockchain investing or investing in cryptocurrency, or manage your own trades using an online brokerage.

The point is, you can handle this. All you have to do is step up and decide it’s time to “adult” a bit harder.