Do you dream of retiring so you can spend time with your grandchildren? Are you hoping to buy a vacation home, travel, or finally write that novel? No matter what your vision of retirement may be, learning how to accumulate wealth is an important first step.
While there’s no single wealth accumulation strategy that can guarantee you’ll get the results you desire, there are some basic principles that are likely to help you along the way. The following six wealth accumulation tips will help you get started.
1. Manage Your Debt
Trying to build wealth while you’re buried in debt is a virtually impossible task. The sooner you can get out of debt – and stay that way – the better off you’ll be. This begins with creating a budget and sticking to it. Your budget should help you live within your means while also allowing you to set aside as much as you can to actively reduce the amounts you owe.
2. Create an Emergency Fund
If the COVID-19 pandemic taught us anything, it’s that we need to expect the unexpected. You never know when you could lose your job, break a bone, or have a major issue with your home or car. That’s why it's important to fully fund your emergency account. You’ll want to have liquid savings equal to three to six months of your necessary living expenses set aside in an account that's earmarked for (real!) emergencies only.
3. Start Investing Early
The earlier you start saving, the easier it will be for you to accumulate wealth. Investing early allows you to take advantage of compound interest. When you have plenty of time before you need to take withdrawals you can also invest a bit more aggressively, since you’ll have more time to make up losses you may experience along the way.
4. Stay Consistent
Remember that wealth accumulation doesn’t happen overnight. Consistent investing is a key to growing your nest egg. Generally, you’ll want to ensure that you’re investing at least 15% of your gross income. Automating your deposits can help you stay disciplined. This is easy to do if you have a company-sponsored retirement plan like a 401(k) or a SIMPLE IRA. If you don't have this option, consider setting up automated transfers from your bank account into your investment account. Doing so will help ensure that you don’t allow budget fluctuations to derail your investment plan.
5. Choose Your Investments Wisely
There are many factors that influence the optimal investment choices for your portfolio. This includes your age, time-horizon, tolerance for risk, and more. Creating an investment portfolio requires a fine balance. It's important to invest aggressively enough to grow your assets and outpace inflation, but you'll also want to do what you can to preserve your assets and protect your portfolio from major losses. Many pre-retirees find that seeking professional investment management advice helps keep them on track.
6. Take Advantage of Tax Deferral
Tax-advantaged investment accounts – like an IRA, 401(k), or a self-employed retirement account -- are some of the best investment vehicles to include in your wealth accumulation plan. They allow you to contribute to your nest egg while simultaneously reducing your tax bill. In addition, you won’t pay taxes on your gains until you’re ready to start taking withdrawals.
Another option is to accumulate wealth in accounts like a Roth IRA or Roth 401(k). These investment vehicles don’t give you a tax deduction now but allow you to take tax-free withdrawals later on.
Consult with a Wealth Accumulation Expert Today!
The accumulation and preservation of wealth isn’t something that happens by mistake. It requires a disciplined strategy that will grow and evolve as your circumstances change. The professional advisors at Bangerter Financial are here to help! Contact us today to schedule a free consultation and portfolio evaluation.