How do I start to build wealth?

To create the kind of wealth that allows you to achieve your financial goals, you must be willing to stick to a strategy and accept guidance. To build wealth that helps you save for retirement and develop a strategy for the unexpected, follow these first steps:

Write down a basic accounting of how much money you bring in vs. how much goes out. Earmark every dollar of income for a specific purpose, including living expenses, savings, ‘fun money,’ and any debt elimination. Begin building an emergency fund with the goal of saving enough to cover your expenses for at least three months should you lose income, have to cover a major living expense such as a house repair, or if you get sick or injured.

If you have loans or carry credit card debt, make a plan to eliminate the debt as quickly as possible, in order to free up more income for saving and investing.

Choosing to invest is a big step. You are looking for growth but may have to accept that it comes with some level of risk. You can possibly grow your wealth, but you can also experience a loss in wealth. Also, time needs to be considered when it comes to investing so you invest in solutions based on your risk tolerance and needs.  Enlist the help of a financial professional to explain your investment options and design a strategy that can help get you closer to your goals.

Whether purchased individually or through an employer, different types of insurances can actually help you build wealth faster!

Wealth at any age

If you’re a 20-something, building wealth might not be top of mind for you right now – but it should be. You’ve got time on your side, and that’s the biggest advantage when it comes to accumulating wealth for your future. Did you know that you would have to save 15 times more per month to reach $1M by age 65 if you started saving at age 55 than if you were to start at age 25? 1

Make the most of that time by focusing on the following:

Don’t take on new debt. If you do not yet have the responsibilities of family or owning a home, that means you can eliminate any debt you have a lot faster. Live within or below your means to eliminate the need for lines of credit or any other debt that could stall your savings or investment goals.

Take advantage of lower insurance premiums. Insurance that can help you build wealth over time will be the cheapest for you at this age, so lock in your plans now. Purchase insurance individually or speak with your employer about any insurance plans you can get through work that will go with you should you change jobs.

Raise your standard of living slowly while you save.  It might be tempting to take on an extra payment for that nice new car or jet off to a luxury getaway with friends. Sorry to throw cold water on those plans, but it’s best not to give in to those temptations too much (definitely treat yourself, but budget for it and remember to keep your long-term goals in perspective). If you save that money and invest it wisely, you’ll get to enjoy those kinds of purchases sooner than you think.

This stage in life often includes mortgages, marriage, children, and lots of responsibilities and temptations that can very quickly deplete your financial reserves if you’re not careful. Here’s what you should be paying attention to:

Try to save on housing. If you have a mortgage, it should ideally take up no more than 28 percent of your monthly household income. If you haven’t taken on a mortgage yet and can’t pay for your house in cash, see if you can afford a fixed rate mortgage at a shorter 15-year payoff period.

Buy insurance. With so much likely relying on your income, it’s important to protect the wealth you’re building while living or if you pass away. And it helps if your insurance can contribute to your investment goals, too! Talk with your employer or a financial professional about your options.

Prioritize retirement. Contribute as much as possible to your retirement fund. Look into employer 401k matching, and contribute at least enough to qualify for the employer match. If you’re not yet contributing the maximum to your retirement due to paying off debt, gradually raise the percentage as you chip away at your debt obligations.

Start a college savings plan.  If you have a child, it’s important to start carving away a portion for them for their college years. The earlier you can start the better. Tax-advantaged accounts like a 529 plan help you save for your children’s education over time. It’s also possible to use cash value life insurance as a vehicle for saving for your child’s education.

Many of us don’t start to seriously think about building wealth until this stage of life – in fact, according to the Economic Policy Institute, the average family with wage earners aged 44-49 only have about $81,000 saved for retirement.2 Here’s what you should be considering:

Preserve the retirement savings you do have. No matter how tempting, do not cash it out or borrow against it.

Assess your investments. Meet with a financial professional to go over your investment options and ensure you’re using the right investments for you based on how much investment risk you can handle and what you’re able to contribute.  

Protect your loved ones. If you don’t have life insurance to protect your family should something happen to you, now is the time to consider your insurance options.

It’s never too late to start accumulating wealth, so don’t feel like you’ve missed the boat. Your earning potential has likely peaked, and that’s a good thing. Here’s why:

You can earmark any salary increases or bonuses to savings. Refrain from buying things you don’t need and put any extra income right into savings. 

Reconsider school loans. It might be difficult, but taking out college loans for your kids can be risky unless you can repay what you borrow within 10 years or before you retire.

Take all the help you can get. If you’re not getting help from a financial professional or through your employer, make an appointment now.

Find a financial representative to help with your financial goals

More Ways to Build Wealth

As your savings begins to grow, consider ways to make that savings work smarter for you. The two primary tactics for getting the most out of your savings include investing wisely and building wealth through insurance.

In the strategies we’ve discussed, we consistently advise to talk to a financial professional – and for good reason: a financial professional is an invaluable resource for your financial goals. He or she can help you create a strategy, stick to it, and devise strategies for making your savings work smarter through investments and insurance.

Disclaimer

1

The statement assumes $381 per month at 25 years old versus $5,778 per month at 55 years old to accumulate $1M by age 65. This represents monthly savings necessary using a 7% hypothetical rate of return (compounded). This is for illustrative purposes only and not indicative of any investment. © Morningstar. All Rights Reserved.

All investments contain risk and may lose value. Diversification does not guarantee profit or protect against market loss.

Securities products and advisory services offered through Park Avenue Securities LLC (PAS), a registered broker-dealer and investment adviser.

PAS is a wholly owned subsidiary of Guardian and a member FINRASIPC.

Investing in 529 plans involves risk, including loss of principal. Before you invest in a 529 plan, request the plan’s official statement and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses, and the risks of investing in a 529 plan, which you should carefully consider before investing. You should also consider whether your home state or your beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s 529 plan. Section 529 plans are not guaranteed by any state or federal agency. By investing in a 529 plan outside of the state in which you pay taxes, you may lose the tax benefits offered by that state's plan. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary.

Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

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