If you’ve seen the lavish spending sprees and apartment tours on various TV shows, you’ve probably had a twinge of jealousy over how wealthy some people are. I know I have been. After all, most of us want to be wealthy.
But how do you create wealth? Is wealth accumulation only for the rich and famous? Not at all! While some are born into wealth, many others spent a long time accumulating their wealth and it is not as difficult as it might seem. In fact, 68% of the world’s richest people are ‘self-made.’
What is wealth accumulation?
Wealth accumulation is simply building up your net worth and wealth over time. The U.S. has some of the most wealthy people in the world, with 7.7 million households having at least one million in assets, according to a 2019 study from marketing research firm Phoenix Marketing International.
But building wealth doesn't happen overnight. There is no such thing as a get rich quick scheme. They are just that - schemes, and often scams to get your hard-earned money. If you want to become one of the 7 million households who are wealthy, you need to take steps to accumulate your wealth.
Why is wealth accumulation important?
There are a number of reasons why it’s a good idea to accumulate wealth. Having wealth allows you to build up your retirement, and build up assets that can be passed down for generations. It’s also mentally beneficial, as you don’t need to constantly stress out about how you will pay your bills each month.
You can work towards your goals, whether it’s buying your dream house or going on a trip around the world for a year. The more wealth you’ve accumulated, the easier it is to plan for bigger things in life.
If you want to become wealthy, you need to learn how to create wealth.
Key steps to wealth accumulation
1. Create a budget
Begin by looking at how much you spend and where you spend it. Are there expenses you can cut out? Try using something like the 50/30/20 budget.
That’s where 50% of your expenses go towards things like rent and utilities, 30% is for things you want, like entertainment, and 20% goes towards savings and paying off debt. It’s an easy way to make sure your basics are covered, while also allowing you to enjoy a night out every once in a while.
2. Pay off high-interest debt
If you have a lot of debt one of your first priorities should be paying it off, especially if it has a lot of interest. Things like credit card debt or payday loans should be paid off ASAP! Once you’ve set up a budget and figured out where you can free up some funds, put that money towards your debt.
By paying off your debt, you’re investing in yourself and freeing up future income to put towards accumulating your wealth.
3. Create an emergency fund
Once you’ve set up a budget and paid off high-interest debt, it’s time to set up an emergency fund. An emergency fund is for those unexpected life events that can eat into your bank account. No one likes having to pay to replace the brakes in their car, but unfortunately, these things happen even to the best of us.
The best way to make sure these unexpected events don’t chip away at your hard-earned cash is to prepare before it even happens. That’s what creating an emergency fund is all about- having savings just for the unexpected.
4. Earn more money
If you want to create wealth, you need to earn more. There are more ways to earn more than you might think. The most obvious one is asking for a raise at work, or switching to a higher paying job. But another simple way to gain more money is to work a side job or two, like pet sitting, selling items on Etsy, or selling your old clothes through places like Vinted.
Once you’ve earned money, make that money work for you! You can do this through investing.
While investing in the stock market is the most well-known form of investing, there are other ways to accumulate assets. You can invest in real estate, set up an IRA, and maxing out any 401(k) matches you get at work.
The investing world can be complex, so do your research. The best thing is to start simple. You can start small by investing through a Robo-advisor, which automates your investments into a portfolio of exchange-traded funds that are chosen based on factors like your risk tolerance, age, and financial goals.
6. Have the right insurance
Once you have a sizable amount of assets, you should get insurance to protect what you’ve worked so hard to achieve. The type of insurance you will need will depend on what the asset is.
For example, if you own a house, you’ll need house insurance. You should also get a good health insurance policy for you and your family to protect you against the financial hardship of medical bills. You can also take out life insurance, which can help protect your family financially in the event of your death.
7. Have a will and estate plan
Finally, it’s important to know where you want your hard-earned wealth to go once you’re gone. While it’s not a fun topic, having a will and estate plan can help your family navigate during a difficult time once you’re gone.
With a will, you can determine who will get your assets, while an estate plan goes into more detail and covers things like paying estate taxes, or naming a guardian if you have children.
How to get started accumulating wealth
If you want to create wealth, take a look at your spending habits. Create a budget using the 50/30/20 rule. Look at ways to invest your money wisely, such as paying off high-interest debt, saving, investing, and diversifying your funds. Basically, you want to make sure your money works for you.
Most importantly, It's all about combining these steps into a financial plan that works well for you in order to accomplish your financial goals.