7 Simple (but not easy) Steps to Building Wealth… Starting Today
So many people think that it’s impossible to build wealth if you weren’t born into it. That’s not true! If I allowed myself to think those were truths I would be hopeless. I’m just a girl who grew up in the projects of New York where my grandmother raised me and I attended public school. I worked a dead end job after high school. I enlisted in the Army. I graduated from a community college. With my background, I shouldn’t even try to build wealth because it’s hopeless. But it’s not hopeless because here I am, doing the damn thang. I truly want to help you build wealth. But I warn you: building wealth isn’t easy! The steps might seem simple but they shouldn’t be taken lightly.
There are 7 steps to building wealth based on Dave Ramsey’s teaching. I’ve edited them for professional (career) childfree women and childfree couples and added one more step. I hope he doesn’t mind.
Step 1: Build a quickie emergency fund.
A quickie emergency fund is a savings account you have that has a balance of $1000. This savings account is for emergencies. An emergency is anything you didn’t plan for. Your pet getting sick, your car breaking down, receiving a surprise bill from the doctor are all surprises that weren’t planned for.
It’s been reported: more than 50% of Americans cannot cover a surprise bill of $500 or more. This can be a catalyst for doing back into debt when hit by this kind of surprise. I wrote an article on how to build one in 30 days or less. You can read it here: How to build a quickie emergency fund.[Tweet “Step 1 to building wealth? A quickie emergency fund #moneygoals”]
Step 2: Get out of debt (except your home)
It’s so easy to say, “Get out of debt”, but I can tell you that it’s not easy at all. It’s definitely do-able if you set your mind to it. I released over $25,000 in debt before starting on this journey. It took a lot of remembering “why” I wanted to be debt free in the first place. It took reducing the impulse to buy things because “I earned the money I can spend it how I want”.
Your mindset has to change and you HAVE to commit to releasing debt! I’ll tell you now; this isn’t an overnight process. It may take a few months or it may take a few years but you’ve got to do it if you want to build wealth. Imagine the feeling when you’ve paid off those horrendous student loans?! Or that dastardly credit card from Macy’s? This feeling will be yours, in time, and it’s more than worth it! I wrote an article on getting out of debt here: How To Get Out of Debt: A Three-Prong Approach.
Step 3: Build that emergency fund of 6-9 months
So you might have noticed that I said 6-9 months when Mr. Ramsey suggests 4-6 months. I’ll tell you why you need 6-9 months. Educated women, on average, spend 6-9 months unemployed when looking for work. I don’t want something bad to happen if you get fired and are out of work for a while.
Having those 4 walls of expenses covered in an emergency fund will release a lot of anxiety and stress. The 4 wall expenses are Mortgage/ Rent, Utilities, Food, and Transportation. This savings account should be in an interest earning money market account. Ally Bank is an awesome bank I use for all my different savings accounts. My quickie emergency fund is at USAA. Once you have this emergency fund move on to step 4.[Tweet “Educated Women Need a Larger Emergency Fund #moneygoals #moneymasterymissfits”]
Step 4: Save for retirement
Saving for retirement is a bit complicated, I will admit. The contribution limit for an individual is $53,000 in 2016. This includes deposits into a 401K, Roth IRA, and their individual limits. I’d get in contact with your HR office at your place of employment or if you are self-employed get in contact with a Financial Advisor. There’s also Google-pedia where you can find tons of free info on this.[Tweet “Step 4: Save for retirement…We are all gonna stop working someday #moneygoals”]
Step 5: Save for a large purchase
Use this step to create a vacation fund. Imagine going on vacation a few times a year without debt. Doesn’t that sound amazing? Or you can save for a down payment on a home. Having a high down payment will make it so you have to borrow less and will own your home sooner. Those sound like win-wins to me. Once you’ve saved for a large purchase move on to step 6[Tweet “Step 5: Create an awesome VACAY Fund #moneygoals #moneymasteringmissfits”]
Step 6: Pay that home off!
Yes, you heard me right! You need to off your home. This is a long-term plan. Actively paying more than the minimum mortgage payment every month will reduce both the amount of interest you pay over time and the amount of time it takes you to pay off your mortgage. You’ll own your home in full a lot sooner. Imagine the feeling of having a couple hundred extra dollars a month to do with as you please without going into debt? It’s an awesome feeling![Tweet “6th Step in Building Wealth? Pay off your home #moneygoals”]
Step 7: Build wealth through investing and charity
Step 7 is where you start investing to grow your income outside of saving for retirement. You might purchase another home, fix it up, and rent it so you can have a recurring income. Or you might become a flipper (cue flip or flop theme song). Or you can start being a philanthropist and donate money to charities that mean something to you. The tax and financial advisors will tell you that donating money will reduce your tax liability…and they are right but please do it out of the kindness of your heart…it’ll feel better 😀[Tweet “Start investing for wealth and income is step 7 in building wealth”]
So, these are 7 of the steps to building wealth but there is still the 8th step. The 8th step is what will make the other steps possible. The 8th step is something you can start working on today. Do you want to know what it is?
Step 8 is….
MINDSET. (Mic Drop…wait. Picks up the Mic)[Tweet “Mindset Will Be a Recurring Theme in Wealth Building #moneygoals”]