Sometimes it makes sense to get back to financial basics. It’s easy to lose sight of the simple things when it comes to finances. You start to focus on complex strategies for growing wealth or try to get involved in the latest fad. The reality, though, is that the foundation for long-term wealth is built from the basics.
Before you get too advanced, here are 5 basic rules for growing your wealth over time:
1. Earn More Than You Spend
This is the foundation of all financial advice. Let’s be honest: if more people were following this piece of advice, we wouldn’t have as much debt. Everyone “knows” that you should earn more money than you spend each month. However, it’s one of those things that seems to be easier said than done.
If you expect to grow wealth long-term, you need to earn more money than you spend. It’s a basic, but powerful, concept. If you overrun your income each month, you either need to make more money, or you need to cut some of your spending.
2. Be Prepared for Emergencies
You never know what will happen next. You need to be ready for an emergency, no matter how it presents itself. Whether you have an emergency fund with liquid assets or food storage and other supplies, or both — you need to be ready for an unexpected event. When you take the time to prepare yourself for emergencies, you’ll spend less money and reduce the chances you’ll need debt to get out of your jam.
3. Protect Your Assets
Don’t forget to protect what you already have. Getting the right insurance coverage can help you avoid financial ruin in the face of the unexpected. Your home and your car should be insured, and you should have health insurance coverage. When appropriate, disability insurance can be helpful. All of these policies help you protect your assets from financial catastrophe. And if you want to make sure your family is protected if you die unexpectedly, you need life insurance.
Sometimes, you need to take a chance. You’re not going to build long-term wealth when all you do is keep your money in a “high-yield” savings account. Instead, you need to invest. It’s not very hard to get started with investing. You can begin with $25 at an online discount broker. Use dollar cost averaging to invest in index mutual funds or index ETFs, and you could be off to a great start. Over time, this can be one of the most effective ways to build wealth.
5. Develop Yourself
Don’t forget to invest in yourself. Some of the wealthiest people in the world have taken the time to inform themselves, develop new skills, and keep learning new things. If you want to boost your earning power, learn to manage your money more effectively, or develop the knowledge needed to start your own business, you need to invest in yourself. Take the time to develop as a person, and you’ll have a greater chance of growing your wealth.
What are your best tips for growing wealth?