Almost everyone’s primary goal in their working life is to increase their wealth.
The sooner wealth reaches a certain level, the sooner financial independence becomes a reality. Retirement also becomes an option when wealth reaches a certain level.
Whether it’s through saving more, earning more, investing more, or a combination of all three, increasing wealth is something that gets a lot of attention in personal finance – and rightfully so.
Here are 3 simple ways that each and every person can consistently increase wealth.
1) Have a Positive Savings rate
Having a positive savings rate is one of the most important financial principles to understand. This has been difficult for millennials recently, as they are currently as a whole are spending more than they earn. From the WSJ:
Adults under age 35—the so-called millennial generation—currently have a savings rate of negative 2%, meaning they are burning through their assets or going into debt, according to Moody’s Analytics. That compares with a positive savings rate of about 3% for those age 35 to 44, 6% for those 45 to 54, and 13% for those 55 and older.
One of the reasons for the negative savings rate is the relatively high level of student loan debt, which has surpassed $1 trillion. Many who go through college will need to take out loans, but hopefully this will result in a long-term increase in earnings that more than compensates for short-term debt.
It’s most important to have a positive savings rate once a career has started. While there may be chances for increased future earnings potential for many graduates, they should stick to living within their means until those increased future earnings materialize.
Consistently saving money will allow for long-term wealth creation. Not only will practicing this principle help with avoiding high interest debt, it will also help with investing consistently, which is my next suggestion for consistently increasing wealth.
2) Invest Consistently
Investing consistently is essential for consistently increasing wealth. The easiest way to do this is to automatically have money taken out of each paycheck and put into your 401(k) retirement account. Many companies offer matching contributions, giving employees even more incentive to set up automatic 401(k) deposits.
If you don’t have a 401(k) account or want to invest in additional ways, consider setting up an IRA or investing through an individual retirement account. These can be set up through a variety of brokerages, but a few attractive options are:
- E*Trade – E*Trade offers free trades the first 60 days after opening an account. There is also no minimum balance required. Trades are $9.95 per trade.
- Scottrade – Scottrade offers $7 trades. Additionally Scottrade has many local offices where investors can meet in-person with an investment consultant.
- TradeKing – TradeKing boasts one of the lowest costs per trade in the industry. They charge just $4.95 to execute a stock trade.
There has never been more options for getting started with investing. Even contributing $100 a month to an individual investment account can help increase wealth over time.
3) Diversify your Investments
Diversification. We’ve all heard about it a million times, but do we really follow through and make sure that our investments are diversified?
Many people are overexposed to one or more investments. How many people went bankrupt when the housing market crashed? How many new investors jump into individual stock investing and have over 10% of their investments in one stock?
If the goal is to consistently increase wealth, diversification is a necessity. Practically all investments go through periods of growth and retraction. An individual investor needs to be thoroughly diversified to avoid having their portfolio devastated by a down cycle or even worse, a bankruptcy.
One way to stay diversified is to invest in a variety of “motifs” on Motif Investing. Motif Investing allows investors to create “motifs” of up to 30 stocks. Investors can also invest in motifs that other people have created. This allows investors to gain exposure to an entire basket of stocks for only $9.95 (per trade) and a minimum investment of $250. My goal in the new year is to invest $1,000 in motifs every four months.
What is your plan for consistently increasing wealth? Have you started your career or are you currently investing in yourself to increase future earning potential?
Photo by Adarsh Thakuri