5 Ways to Build Wealth

L.N.
May 21, 2023
5 min read

In lieu of graduation season, I thought I would share some of the tips that have helped me improve my financial wellness now that many of us are entering the workforce ---- after all, health is wealth.

Whether you are struggling to save, looking for more opportunities to make extra cash, or simply want to develop better financial habits, then this blog is for you.

1. Save, Save, Save

It may seem like a no-brainer, but the best way to build wealth is to just save money.

The rule of thumb for saving is to take a comfortable percentage of your (biweekly/monthly) income and deposit it directly into a savings account. The more you save and the less you take out, the better.

If you are one to dip back into your savings account often, you need to exercise more discipline or develop a more strict mindset. Consider your savings as a last resort pot of cash that does not even belong to you rather than a reserve for when you run low in your checking account. However, if you do have to dip into your savings, just make sure to put it back in addition to what you are currently saving.

I personally recommend using a High-Yields (or High-Interest) Saving Account alongside or instead of a traditional savings account. In a nutshell, high-yield savings accounts allow your savings to work for you because they generate greater interest rates (APY) than traditional accounts. In other words, instead of earning $1 every month from a savings of $10,000, you could be earning $30!

But don't just take it from me, read more here!

Of course, savings accounts are not the only way to save. Retirement funds (such as Roth IRAs), investments, mutual funds, etc. are all great ways to save --- especially if you start early.

2. Building Good Credit

I once had a woman tell me that credit cards are the devil --- they are not.

Not all credit is bad credit. Good credit is often necessary when you want to make large purchases or investments such as a car or house --- which also build wealth. However, one thing to keep in mind is that you should NEVER spend more than you earn.

If you are new to the credit game, there are a few ways to get started.

I personally recommend starting with a Secured Credit Card. A secured card allows you to invest in yourself and ensure you are ready for real credit. You start by depositing a decent sum of your own cash, say $300, as your credit limit and go on using the card and paying it off as one would with a credit card. After about 6-8 months or so, they assess your credit habits (timely payments, usage, low/high balances), issue you a credit score, refund your deposit, and give you a real credit limit.

It's basically a trial run for the real thing. Not only is it a good way to build credit but it can also help your score if you already have one. If this interests you, I suggest going with Discover because they offer great first-time benefits!

Now, if you already have a good credit score, I want to help you get to excellent!

Credit factors such as payment history, usage, or derogatory marks have high impacts on your score, but factors with low impacts such as the number of accounts you have are also important to good credit health.

I say, only apply for cards that provide the most bang for your buck, have decent rewards, or offer great intro bonuses. For example, if you like to travel often, an airline, hotel, and/or travel card might come in handy for getting you more miles or hotel points to save on your trips.

Credit Tips & Tricks

Never close a credit card if you can help it. What about the cards you don't use anymore? Simply put a subscription or two on it, set it on autopay, and leave it alone. Now you have a card working for you instead of against you, plus it keeps your spending organized.
Reduce unnecessary credit inquiries. Several people can get caught in the death trap of applying for store credit cards to save a couple of bucks on their shopping spree. For one, if you don't have the money to spend, then don't spend it! Regardless, store credit is not the answer --- unless it's a store you shop at often and it's a Visa/Mastercard. Every time you apply for a store credit card, you are getting hit with inquiries that ding your score.
Limit the use of your debit card and put purchases on credit. Credit cards are not taboo, in fact, I always use my credit card for everyday purchases to earn more points/rewards. However, be sure to check your checking account beforehand to confirm you have the funds to spend in the first place. I typically like to pay off my credit card with my debit card every week to keep my usage low.
Stay informed about your credit. Apps like Credit Karma are great ways to get a free credit score anytime and track your progress. I also recommend using NerdWallet if you are in the market to find a new credit card for the big and/or small purchases in your life.

3. Track Your Spending

As someone who has a slight issue with swiping my card like there's no tomorrow, I find it crucial to track where my money is going.

Apps such as Mint or Rocket Money allow you to track how much you're spending vs earning in a given month (net income) so you can see if you are in the GREEN or in the RED. Seeing this helps train my mind to want to stay green. Mint also displays all your transactions in a pie chart to better visualize where your money is going every month.

Tracking your spending is dire to growing your wealth. Anyone, no matter how savvy with numbers, can use these apps or their bank statements to find out if the percentage of their expenses should be where financial advisors recommend. You don't need to pay someone else to do it for you! For example, the standard for budgeting your housing costs is that 30% of your monthly income before taxes should go to your rent. If it's less, great! But if it's not, then you should take action to either increase your income, find more affordable housing, or a roommate if you can.

When we fail to watch our $$, it can easily get lost in the pesky subscriptions we forget to cancel or other miscellaneous charges. It's your hard-earned money so try to take care of it.

4. Optimize Your Cash Flow

I have said it once before and I will say it again. I am not cheap, I am frugal.

If you don't know the difference, you are in the right place --- especially in this economy.

Being frugal means buying quality products but waiting for a genuine sale, using coupons/discounts, or some kind of cashback offer to offset the cost. Being cheap is buying whatever you can find at the lowest price possible --- no matter the quality.

Here are a few of my favorite apps to purchase the same goods & services you love at a discount or for cashback!

5. Ready, Set, Goals

How we measure wealth is subjective to our personal lives and experiences. It is essential to define what a wealthy lifestyle means for you so you can plan your goals around it.

One thing to keep in mind, however, is that big purchases such as travel, a home, a car, or a wedding should always be budgeted. You can easily set a savings goal for those things by contributing a comfortable percentage or an amount every month and tracking it. As a visual person, it's easier for me to open several different savings accounts for different goals and close them when accomplished.

Some people have goals to save a certain amount of money by a certain time. Easy. Set the goal and budget, it's really that simple! Creating a plan to get from Point A to Point B can be fun, plus it puts your mind at ease when you have an idea or projection of where you can go.

Learning how to set smart financial goals is key to building wealth for the future.

The author does not claim to be a fiscal expert nor is her written advice a guarantee of wealth now or in the future.