by CJ Miller, CFP, RMA
Obtaining wealth is a foreign concept to most people. In a 2019 study, the Federal Reserve even reported that 39% of Americans don’t have enough money to cover a $400 emergency. For people living paycheck to paycheck, it seems that building wealth is out of reach. The truth is, although it's challenging, there are three general pillars to begin building wealth that almost anybody can follow.
The first pillar to building wealth is to learn the money management basics. If you don’t understand how money operates and interacts with other areas of your life, you’ll never begin to build wealth. The most vital lesson to learn is your spending limits. Start by tracking spending, and then form a budget to identify areas you can improve. This will help you form short-term and long-term money goals, like saving more each month in an emergency fund or buying a home.
The second pillar of building wealth is to maximize your “human capital”. Human capital is your ability to earn money over time. If you put yourself in a position to make more money, your good money habits will go a lot farther. To maximize human capital, it's important to find something you love to do. If you have a passion for what you do, you’re more likely to stick with a career and develop expertise that commands a high wage. There’s no substitute for 20 years of experience in a field.
The other aspect of human capital to consider is understanding how you are paid. Many people only think about salary, but “soft dollar” benefits can be just as valuable to building wealth. Some of these benefits include a comprehensive health care plan, generous 401k match, or student loan assistance. Although they may not show up in your bank account, these items should be considered when evaluating job opportunities.
The last pillar to building wealth is taking calculated risk. Entrepreneurship is the leading form of wealth building in society, but it's also very risky. That said, if you have the grit to build a business, there is no better way to accumulate wealth. For those that don’t want to start a business, investing your money in capital assets like the stock market or real estate is a tried-and-true approach to building wealth. If you aren’t sure where to how to get started on investing, consider hiring a Certified Financial PlannerTM to help.
About the author: CJ Miller, CFP, RMA
CJ Miller, CFP®, RMA® is a financial planner with Sensible Money in Scottsdale, Arizona. Miller is also a member of the Financial Planning Association (FPA) of Greater Phoenix Board of Directors and involved in the Active 20-30 Club.
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