Looking at financial advice is overwhelming for all those individuals without generational wealth or an income over $150,000. According to “Statista” only 18.6% of Americans have an income over $150,000. This leaves the remaining 81.4% of the population without generational wealth floundering like a fish out of water. As we try financial planning to increase our wealth to set ourselves and our families up for success, we are bombarded with financial tips.
The leading experts on wealth tell us that we have to do the following five things to build wealth.
You have to invest your money to build wealth.
You have to pay off your debt to build wealth.
You have to keep your credit cards paid off to build wealth.
You should have an emergency fund to build wealth.
You should have multiple bank accounts to manage your money, to build wealth.
The reality for most individuals trying to manage their money though, is that they barely have enough money to try to achieve any one of those pieces of financial advice. So how do we decide which pieces of financial tips to prioritize to build our personal wealth the fastest? Which financial tip is best for your financial situation?
I would love to say here’s the secret, do these three things and bada boom bada bing you will have wealth. However, you guessed it, it is situational and dependent on your personal needs. Here I will share the most ideal financial planning prioritization for those fortunate enough to be in a good place to try to increase their wealth. For the rest of us the prioritization of financial tips are goals for us to achieve.
The question most ask themselves when they first see financial advice to build wealth is how am I supposed to afford all of those things? Once an individual comes to grips with the fact that they cannot afford to do all of those things, the next question is which financial tip to build wealth is the most important? Or, we ask which financial tip will make me the most money the fastest?
First things first, you are far from alone. When I started to try to build my wealth I did not have enough money for multiple bank accounts, there was no end in sight to my debt, I couldn’t fathom investing, and I depended on my credit card to afford needs like groceries and gas. At first, I was so overwhelmed I did not take any financial advice to build my wealth.
Thankfully, out of necessity I was budgeting. Unknowingly, I was building my wealth by prioritizing debt payments in my budget. The budget also helped me learn to live within my means.
The trick to build your wealth is understanding your finances enough to know what is BEST for your situation. If you are just beginning your financial journey budgeting is the place to start. Check out the links below for help to start budgeting and to live within your means so you can build your wealth someday.
If you already have a full grasp on your financial situation the next step is identifying which piece of financial advice will help you grow your wealth the fastest. There are options that are very risky and may give you a large wealth increase, but could also decrease your wealth if it does not work out. Then there are more conservative options to grow your wealth that pay a little at a time, building larger wealth over time.
The one thing you can do to increase your wealth the fastest is to increase your salary by getting a second job. I assume if you are reading this it is because you enjoy your sanity and are looking to build your wealth without a second job or side hustle. So, we will not discuss that option any further here. Just want to make sure you know that if you are truly in a pickle and need more money, that increasing your income is the fastest way to build your wealth.
For individuals living paycheck to paycheck you will prioritize only one item on the financial tip list at a time. For those individuals blessed with enough money to live comfortably, and are looking to manage their money responsibly, you will be working on more than one item on the financial tip list at a time. In general, for the average individual, the financial tips listed here can be prioritized in the following order.
1 You should have an emergency fund to build wealth
2 You have to pay off your debt to build wealth
3 You have to keep your credit cards paid off to build wealth
4 You have to invest your money to build wealth
5 You should have multiple bank accounts to manage your money, to build wealth
Having an emergency fund is prioritized as the number 1 priority because life can happen at any moment, and without an emergency fund you are vulnerable and at risk. As a rule of thumb it is a good idea to have a 4-6 month emergency fund. A 4-6 month emergency fund means that you have enough money to cover living expenses for 4-6 months if you suddenly lost your job or income.
Prioritized as second out of financial tips, is to pay off your debt. Paying off your debt is second on the list because it will reduce your monthly living expense and increase your spending power or credit. The same can be said for the financial tip prioritized as third on the list, paying off credit card debt. Paying credit card debt and paying off debt can change between second and third on the list of priorities depending on which have higher interest rates or balances. Ideally you can lump paying your credit card(s) off with your debt.
The financial tip prioritized in fourth place is to invest your money. Invested money makes an average of a 4% return every year. Investing your money is a great way to have money that would be sitting in a bank account, make you more money while it sits. This is called passive income, income that you do not need to dedicate time to obtain.
One consideration to take into account is that although investing money can make you money, it is also a form of gambling where you risk losing your money. So, even though investing your money is on the list be sure to ask questions and understand investments before allocating cash to investments. Investing can be anything from purchasing stocks or bonds to investing in a property or vehicle that you plan to fix-up and sell for a profit. The most important thing to do to invest your money is to do your research, ask as many questions as you can, before you invest.
Last on the list of financial tips is to have multiple bank accounts to manage your money. This financial tip is last because first you need to have enough money to put in multiple accounts before you need multiple accounts. Hopefully after you have achieved the previous 4 financial tips you have enough money to have multiple financial accounts.
Once you start considering managing your money in multiple accounts be sure to do your research to find accounts with the highest interest rates. Most banks have accounts with higher interest rates than your common savings account that require a higher minimum balance. There are also on-line banks that have even higher interest rates for savings accounts relative to brick and mortar banks. Online accounts typically have .2% or greater interest rates relative to brick and mortar banks.
Even if you cannot afford to start working on any financial tip on the list, know that it is important to have goals and work towards achieving them. If you are not where you want to be financially today create a 1 year or 3 year or 5 year financial goal. Include detailed action items you can work towards, one at a time, until you reach your goal.
I wish you the best of luck in your financial endeavors and cannot wait to hear about your success!