According to data from the Federal Reserve, the bottom 50 percent of American households only hold 2.3 percent of total US household wealth. The top 1 percent of households, in comparison, holds more than a third of total US household wealth.
This uneven distribution of household wealth might not be a surprise to families struggling with debts and inflation. But the key to breaking this trend is to understand what low and middle-income families need to do to grow wealth in the first place.
So what are the best ways to build wealth? Let’s take a look!
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1. Pay Off Your Debts
You can’t build a house without a firm foundation – and the same goes for building wealth. If you have debts to pay off, deal with these first. This is especially important if you have high-interest debt, such as credit cards. Few investments ever pay as much as credit cards charge so by paying these off first you’ll avoid accumulating more debt than you can make through investments.
If you can’t manage to pay off your debt, your last resort is filing an emergency bankruptcy petition or skeleton bankruptcy. An Emergency Bankruptcy Petition permits filing the minimum paperwork to enforce an automatic stay. An automatic stay is a court order to cease debt collection, such as property foreclosure, rental property eviction, and vehicle repossession. Moreover, this order also stops wage garnishment and debt-related lawsuits. If you have already found yourself in a position where you cannot pay off debts, such as car finance for example, then you are going to need a lawyer who is an expert in car repossession law to help you avoid any unwanted fines, and repercussions later down the line. The sooner you clear your debts, the sooner you can start clearing out all the negative financial implications you have.
2. Increase Your Earnings
If you have a job, it pays to evaluate your income situation and whether it meets both your immediate needs and your saving goals. Are there ways to diversify your skills and boost your income? Or would it be possible to work from home and save money on commuting?
Asking for a salary raise or switching to a better-paying company are more obvious ways to increase your earnings. Or there’s always the possibility of working overtime or getting a second job if you’re out of other options.
You don’t even have to search far to find another job. Side gigs or part-time jobs are available online. For example, you can teach students Math, Science, English, or any language or subject you excel in online. You can also teach music, cooking, photography, or painting. So, don’t hesitate to make your hobbies and passion an income-generating source for you to gain extra money.
3. Save Money
The best way to save money is to “pay yourself first.” This tactic refers to putting a set amount of money in your savings account as soon as you receive your paycheck. It can take a lot of commitment to follow this kind of forced saving route, but it’s a sure-fire way to limit your spending and boost your savings at the same time.
Make sure your personal savings are hard to access. You can do this by choosing a savings deposit or a savings account with a passbook only or without an ATM card or credit card connected to it. Consider this savings account as your retirement fund, which you can use to venture into a startup business or travel once you retire. So, open another account for your emergency fund, which is easier to access when an immediate financial need arises.
4. Find Ways to Make Passive Income
If your income isn’t helping you grow your savings as fast as you’d like, it can be worth finding ways to make passive income.
Many people assume that the only way to make passive income is with an investment portfolio. But you can also make passive income through anything from renting out your backyard to beekeepers to advertising with your car. These methods might not make you a ton of cash but they can be great ways to get money fast without working for it.
And then there’s the best way of all to make passive income and build generational wealth – by buying real estate to rent!
5. Make Smart Investments
Once you have enough money saved to cover six months of expenses, you can start thinking about investing the rest. It’s best to consult a finance expert, such as a financial advisor, to help you choose the best investment.
Although there are all kinds of exotic investment options out there, most people stick to the basics of stocks, bonds, and mutual funds. But, as these wealth management tips stress, diversification is key to reducing risk and maximizing return.
The Best Ways to Build Wealth
The idea of becoming a millionaire overnight might be appealing. Short of winning the lottery, though, there’s no real way to get rich that fast.
As these tips show, the best ways to build wealth can take a lot of time and focus. But, building wealth through savings and investments is also a lot more likely to happen for you than a 176 million-to-one lottery win!
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