Building Wealth Every bit of wealth you save earns you more freedom.
Most of us have had a time when an unexpected bill or car repair could wreck our entire month. Building a little savings account frees you from that stress.
Many of us have been stuck in a job we'd love to quit... But we've got rent to pay. Building up a bigger nest egg could allow you to job-hunt full time.
This issue is about how wealth creates freedom. And most important, it's about how to earn your own freedom.
For recent graduates, this is a great time to start building the habits that will ensure your financial freedom.
But even if you've attended more than a few college reunions... the tenets of building your wealth to create freedom remain the same, even if the specific advice changes a bit.
The No. 1 way to start building your wealth is to live your life right.
This is straightforward. You need to spend less than you earn. If you don't save your money, you'll never get anywhere.
This isn't a matter of intelligence or study. It's a matter of discipline.
Everyone knows that saving more will build their wealth. Every January 1, you probably make a resolution to save more money this year.
Yet almost no one does it.
According to a survey from Bankrate, 19% of Americans don't save any of their annual income. Another 21% only save 5% or less. And only 16% of Americans save more than 15%, which is generally accepted as the proper amount to save.
Our lack of saving isn't because we're lazy or stupid.
Part of the reason we don't save is because of something called the "present bias." That's when we prioritize our current desires at the expense of our long-term goals.
In other words, "I want it now."
This mentality is heavily ingrained in the human mind. And it's hard to break free.
For one, we do a bad job of understanding what will really make us happy. It's never a gadget or status symbol. We all get a little rush of satisfaction when we buy something cool – or something that makes us look cool – but a moment of honest reflection would teach that even 20 minutes later, the feeling is gone.
And so is your money.
You should have hobbies and interests that you're willing to spend on. For me, it's books and wine. If you're a true gearhead, you might enjoy owning a nice car.
But if you just want something with a Lexus logo to impress your friends, that's wasted money. Everyone else is caught up in their own world, and they probably think about you a lot less than you can imagine.
We all overspend for different reasons, and you need to find the mental tricks that work for you. Some folks do well by pricing things in "hours worked" instead of dollars. Others have their wages directly deposited to a savings account so they never see them. Some can keep a tighter eye on things by obsessing over a detailed monthly budget.
Try all the tricks and see which one works to prevent your spending vices. Then stick to it.
Once you've got a little extra money, what should you do with it? You've got to pay off the credit cards and build up a "rainy day" account of at least three months of expenses.
Remember, no one is going to grow your savings account but you. And you're not going to do it by spending more than you make. Show you've earned a place in the world of adults by spending wisely.
What are your personal tenets for building wealth? Share them with us at [email protected].
What We're Reading...
- Something different: Eggs are finally getting affordable again.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
June 7, 2023