For many people, building long-term wealth is the same thing as making more money. However, even though it’s true that your income determines your potential for saving and investing, it is not the same as wealth.
In fact, many Americans have high incomes yet still struggle to save for retirement or build a stable financial foundation.
This is why it’s important to look beyond your income and think about long-term ways to build wealth. You do not have to be rich to invest wisely and build a stable future for yourself and your family.
1. Get Paid to Leave Your Money in the Bank
One of the best ways to grow your money is to keep it in the best high-yield savings account that you can find, and there are many to choose from.
These accounts give you much higher interest rates than regular savings options, depending on factors like how much money you deposit and how long you leave it in the account.
No matter where you decide to keep your money, though, experts say that using a savings account with a high-interest rate could potentially grow your money by up to 25 times compared with what you might earn from a normal savings account. One of the best ways of accessing these benefits is to move away from your regular bank and look at the interest rates of online banks and other establishments.
A noteworthy savings account of this type is the American Express high-yield savings account, which offers savers 1.00% APY (average percentage yield) meaning that if you deposit $25,000 followed by monthly instalments of $500 over a five-year period, you would stand to earn more than $2,000.
Aside from the Amex high-yield savings account, there are plenty of options including the Citibank account with an APY of 1.05%, which is one of the highest interest savings accounts available, along with CIBC bank, which matches this figure.
2. Invest in Safe Long-Term Stocks
Some of the most financially secure households have taken the initiative to buy long-term investment stocks, and there are many good reasons for this.
With the ability to invest literally from the palm of your hand through smartphone apps, long-term investments are easier than ever, and you do not need to be a stock expert (or to pay stock expert prices) to get started.
Options like an S&P 500 index fund, for example, are a great way to invest with little risk compared to other stocks. Index funds do not try to beat the market — instead, they try to match the market’s overall long-term growth. This makes them safer and usually cheaper to manage, making them especially friendly to beginner investors.
The S&P 500 is tracked by VFINX (Vanguard) and SPY, and these index funds are ideal for finding the right long-term investments for your budget and needs. However, be sure to take a look at other Vanguard index funds as well, since there are many to choose from.
Even though it can be nice to dream about buying the perfect stock at the perfect time and seeing your money double overnight, this is not realistic. When it comes to the stock market, slow and steady is the way to go if you want to avoid risk.
Plus, when you find the best stocks for long-term investment to suit you, you will notice a decrease in tax compared to short-term investments, since these are seen as a regular, taxable income whereas their long-term counterparts are not.
3. Look at Real Estate as Passive Income
Real estate is one of the most expensive investments most Americans will ever make, but they are one of the best ways to build wealth.
Even if you do not have the cash or financing on hand to buy property, though, you can still take advantage of real estate as passive income through Real Estate Investment Trusts (REIT). These trusts purchase and manage real estate the way that companies like Vanguard purchase and manage stock shares. And just like stocks, you can buy and sell REITs to hopefully make money in the long run.
Of course, there are other ways of building wealth through real estate and earning a decent passive income. When many homeowners want to buy a new home, they sell their existing one. However, in a way this is like cashing out early.
If you keep and rent your previous properties, then they should appreciate in value over the long term. After a while, you may be able to purchase several properties, building long-term wealth.
If you are not keen on being a landlord, you can even consider employing an investment manager. While this can be costly, a good one will help you break even and make a profit. Not only that, but they may have a better idea of the best places to buy investment properties, something that can prove to be a bit of a headache if you have no previous experience.
The main thing to remember when investing in real estate is to do your research. If you jump in at the deep end without a solid plan, it could be a recipe for disaster. Similarly to stock investing, patience and rational decisions are key.
4. Do Not Neglect Your Retirement Planning
It’s one thing to be wealthy during your younger years, but when you reach the age of retirement, it is essential to have good financial backing.
There are many ways in which you can prepare for retirement and it should start at the beginning of your adult life. These things don’t have to take over your life, but they certainly should take a priority.
At a basic level, opening a retirement savings account will set you up for the future. To get a better sense of what your retirement could look like, use a 401(k) estimator online to give you an idea of what target you should be aiming for by the time you’re in your 60s.
Some people prefer a traditional IRA when saving for retirement, but there are some who think that opening a Roth IRA will give them a better retirement fund. This is because tax on a Roth IRA is paid when you make deposits rather than being deducted upon withdrawal of the funds.
According to experts, a good retirement portfolio should be made up of two key components — income and equity. Provided you have decent savings and solid investments, your retirement plan should go without a hitch.
5. Make Debt Elimination a Priority
Getting rid of debt can free up a lot of money which can either be spent or invested. One of the best ways to eliminate debt is by having a solid debt management plan. This may help you speak to your creditors and come up with a manageable solution to your debts, ultimately paying them off and freeing you up financially.
To get started, you should look to eliminate credit card debt since this is one of the most common, and easiest to pay off. Your credit card provider may be willing to freeze interest if you agree to make larger payments in order to clear the debt faster. To do this, you should contact the provider in writing.
There is the option to refinance your mortgage and a cash-out refinance may give you the additional funds to consolidate other debts and be left with one monthly repayment. Before doing this, you should compare home refinance rates to ensure that the interest you will be paying will be less than your current debt payments.
Seeking advice from a professional can be useful when developing your debt management program and these services can often be found for free at credit unions or charitable organizations.