Building wealth can be as simple as the amount you invest, the term of your investment, and the rate of return on your investment. The S&P500 Average annual returns are around 10%, so wait long enough and you’ll probably do just fine.
What you can control is how much you invest. Putting more money to work can accelerate your path to financial freedom. Here are three ways to increase those contributions; your future self will thank you.
1. Look for unnecessary budget expenditures
Many people “leak” money from their homes and don’t realize it; about one in five people don’t keep a budget, making it hard to know what you’re spending your money on.
A survey of 2,500 consumers by West Monroe showed that the average person pays about $273 per month in subscriptions or $3,276 per year. Suppose you don’t need that magazine subscription or the most expensive phone plan. Cutting just $25 a month and investing it instead would grow to $37,242 over 25 years if you received a 10% return on your money.
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Now, what if you modestly reduce your lifestyle? Do you need the most expensive finishing package on your car? Do you need to eat out four nights a week? Of course, you have to make sacrifices, and it can be difficult to build wealth on budget cuts alone. But it’s an important first step if you don’t know where to start.
2. Generate passive income
Your career is a barter system between your employer and yourself. It’s a job where you give your time and energy to your work, and they give you a salary in return. No one has infinite energy and everyone gets the same 86,400 seconds every day.
This is where passive income can help you increase your income beyond what you are capable of through your daily activity. Passive income means you earn money effortlessly. For example, you buy a rental property or dividend stocks. Any rent or dividends you receive are passive; you receive them because you own the asset, not because you physically did something.
Many retirees want passive income to pay for living expenses, but you can use passive income to build wealth by reinvesting it. This rental property can eventually buy another one, and you can reinvest the dividends to buy more shares – which pay their own dividends! In the end, you could have as much (or more) passive income than what you earn from your job.
3. Start your business
Last but not least, too many people underestimate the power of a side hustle. You don’t necessarily have to do anything too ambitious to make a huge difference in your finances.
Secondary agitation can take many forms; you can sell something or do something you are good at for a fee. Even delivering pizza on weekends can work. However, the trick is to separate it from your household budget; Lifestyle inflation, or “Keeping Up With The Joneses,” is a silent wealth killer.
Earning $500 per month (or $115 per week) with a side business and investing can yield tremendous results. You will have a million dollars if you do this for 28 years and earn 10% on your investments.
That doesn’t seem like much because the bar is so low in this example. I suspect you might surprise yourself with how much you can do. Earn and invest $1,000 a month and you’ll reach millionaire status in 22 years. Like I said at the top of the article, the more you put in, the faster it adds up.
Here is the bottom line
The best part about it is that you don’t have to choose just one from the menu. You can get really rich by watching your spending habits, accumulating passive income assets, and starting a side hustle to fuel your investments. Knowing the information is not enough; you must act accordingly. So go out and dominate your finances.
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