Nobody wants to have money troubles, but many of us have them all the same. The statistics are troubling: Americans are saving too little for retirement, have too little money in their emergency funds (or don’t have emergency funds at all) and are struggling to avoid going into debt.
Taking care with your personal finances is extremely important. The cycle of debt is cruel, and stabilizing your financial situation can be very difficult once you start seeing problems arise. Here’s what you need to know about staying solvent and building wealth.
Spend less than you earn and save
In some extreme situations, Americans simply don’t make enough money to cover their expenses. But in many others, Americans are making poor choices that use up money they should be saving.
The first step toward building wealth is, of course, spending less than you earn. And doing so might not be as tough as you’d think. Look for areas in which you’re spending too much money. An accurate budget will help you pinpoint problems.
Common trouble areas include clothing, which the typical American household spends $1,700 on every year. Some of that expense is unavoidable, of course — we have to dress ourselves. — but the ways in which we shop could be part of the reason that the number keeps creeping higher.
Consider doing more of your shopping at an online boutique, where low overhead costs help keep consumer prices low. This doesn’t mean shopping at big e-commerce giants with low-quality goods. Some of the hippest online boutiques are still much cheaper than many brick-and-mortar clothing stores.
Investing to build wealth
Saving is the first critical step in building wealth. But if you hold onto what you make in cash, you’ll slowly lose money — thanks to inflation. That’s not a good long-term strategy for growing rich.
That’s why you’ll want to put your money in places where it can earn interest. Savings accounts are better than checking accounts for this purpose, but most important of all are investment accounts. A diverse stocks and bonds portfolio will help your nest egg grow faster than inflation, meaning you’ll have a passive way to grow wealthier.
Investing in basic ways is simple, but you can learn more about more complex strategies if the topic interests you. Find the best options trading strategy if you’re interested in stock options and other more complex stock market bets. Turn to financial advisers for advice that’s specifically tailored to your situation, finances, and goals.
Avoiding bad debt
Not every cent you have should be invested, of course. You’ll need to have an emergency fund on hand to help you handle sudden and unexpected expenses. It’s very important to be able to absorb expenses, because if you’re forced to take out short-term debt every time you have a bill to pay, you’ll quickly be trapped in the cycle of debt.
Short-term debt can be extremely toxic. With high interest rates and a good chance that you’ll need to get more loans to cover the payments on earlier ones, debt can get out of hand fast. So be careful with your budget and always have an emergency fund.
Stick with it
Perhaps the most important thing that you can do to build wealth is to be consistent. Keep saving money every paycheck, and make sure that those savings go into investments. Also keep some in an emergency fund. Consistency is key, because small amounts of money can really add up over time if you stick to your goals. You don’t have to be rich to become rich.