There are many different aspects, stages, and techniques to building wealth. However, if you want to start wealth building, then you have to begin at the beginning. Before you do anything else, you need to get your finances organized. There are three key steps to this first stage.
1. Simplify Your Finances Before You Start Wealth Building
Financial planner Sophia Bera has laid out a smart three-step plan to start wealth building. She recommends that before you even begin to think about building your wealth, you simplify your finances. The less mess that you have to deal with, the easier it will be to build your wealth in the years to come.
It all starts with two big steps:
- Figure out your net worth. If you don’t know what you are worth now then you aren’t going to be able to gauge your financial growth.
- Set a budget. Reduce your expenses as much as possible. Get frugal for the long haul. Use a budget to organize this information and stick to it over time.
This step is all about getting a good understanding of where you’re at with your money right now. That’s the only way to start setting realistic goals. You may wish to start planning out those goals at this stage as well. Alternatively, you may want to wait until you’ve completed Step Two.
2. Streamline Your Money
Once you’ve simplified your finances, you can actually take things even further. Simplify even more by streamlining your money. This means adding more detail to the net worth and budget lists you created in step one. Create detailed lists of:
- Bank accounts including checking, savings, and investment accounts
- Debts including loans and credit cards
- Retirement plans
Streamlining means that you whittle down the debts and expenses and increase the income and savings through smart choices. For example, you may realize that your savings account doesn’t earn that much money. Therefore, you would switch to a high yield savings account. If your debts are eating away at you then you might pull some money from savings to pay down those bills.
If you did not set your short-term and long-term financial goals in Step One, then you’ll want to do that now as well.
3. Automate Your Finances
Once everything is simplified and streamlined, it’s time to automate as much of your money as possible. The less that you have to think about your finances, the easier it is to build wealth. Here are some examples of ways to automate your money:
- Automatic money transfers from checking to savings, retirement, and investment accounts
- Direct deposit from your employer to your checking and savings accounts
- Payments for all of your loans and credit cards; you may set bi-monthly payments to pay down debt faster
- Reminders and alerts for important financial deadlines such as when your 0% APR period is up
Sophia recommends that you start wealth building by following the three steps above. In fact, she says that’s all you really need to do in the first year of trying to build your wealth. You’re playing a long game here. Get organized, be patient, and let your money grow.
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Kathryn Vercillo is a professional writer who loves to live a balanced life. She appreciates a good work-life balance. She enjoys balance in her relationships and has worked hard to learn how to balance her finances to allow for a balanced life overall. Although she’s only blonde some of the time, she’s always striving for total balance. She’s excited to share what she’s learned with you and to discover more together along the way.