Keeping track of where your money is going is a critical step toward creating a plan to build long-term wealth. Everyone’s idea of what it means to be wealthy is unique, which is why it’s important to establish a plan based on your own personal financial goals.
When it comes to building wealth, most people focus on the reducing down their spending, like should I skip buying a cup of coffee sometimes? or whether to buy that suit or no? We must not only focus on cutting back on budget and save for the next years, to afford a down payment on a mortgage, for instance.
Though, those questions alone make no big difference in our financial life.
Instead, you should also focus on how much you should automatically save or invest every month? or how can you increase your income or the salary?
These questions are worth tens of thousands of dollars and yet some remain playing small by asking only questions about what can save us a little.
One of the biggest misconceptions people have about getting wealthy is that it should be an exciting process and happen quickly. However, real wealth is almost always created consistently over a long period of time.
Instead of waiting and hoping to win the lottery, the following are two things you can do now to start building wealth.
1. Create a conscious spending plan
Instead of relying on a budget to manage your money, we recommend creating a conscious spending plan.
Planning budget is a good approach toward creating wealth. In spite of that, you can end up dedicating more time to categorizing your spending and living a poor life, than using your money to live a rich life.
With a conscious spending plan, you track the following instead:
- Fixed expenses, such as your rent or student loan payments
- Savings, including your emergency fund and money for big purchases or trip
- Investments, such as your stocks, funds, business, 401(k) or Roth IRA contributions
Allocating your money in this order ensures that your financial responsibilities are taken care of first. Then, you can spend the remainder of your money or add it to investment category.
2. Focus on your savings rate
A key question should be on what is my savings rate? This refers to the percentage of your monthly income you’re able to set aside for the future.
The difference between saving 6 percent of your income versus 7 percent is worth thousands of dollars over your lifetime.
However, it’s not a bad thing if you’re not able to save that much right away. Start by putting away what you can, say 3 percent, then increase your savings rate by one percent each time you can.