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The best wealth-building strategies maximize gains while minimizing losses from taxes, fees, and other sources. Learn tips to grow your wealth with this guide.
What's Playbook? We're your friendly guide to paying less in taxes (legally!) and putting your money in the right places automatically. Money stuff can feel hard, but we’re here to help along the way.
Watching your money grow is a reward that takes patience.
Lucky for you, we’re not gatekeeping these savings strategies. Let’s dive in and explore the five best tips to grow wealth over time so that you can stop sweating decimal points and start thinking about how you’ll spend your money in retirement.
Growing wealth is a mindset as much as a journey. Like preparing for a long hike or getting ready to take a hot yoga class, it’s best to know what’s ahead of you before starting off.
To set yourself up for success, lay the groundwork:
These six strategies are the best tips to keep in mind for long-term wealth creation.
One of the most important parts of any wealth-building strategy is minimizing taxes. Even if you timed the market perfectly, tax-efficient investing can lead to higher after-tax returns.
When you consider all the benefits that tax minimization has to offer, you might wonder why you didn’t try it sooner. But it’s not your fault. Tax minimization isn’t talked about as much as investing in the stock market or gaining interest on a savings account – even though it’s far more reliable than the first and more lucrative than the second!
Tax minimization helps you:
Tax minimization should always stay within the bounds of tax laws and regulations. Engaging in legal tax planning strategies ensures that you build wealth while staying in compliance with the law, avoiding penalties or legal issues.
No matter how much you’re able to legally save on taxes, you’ll still end up paying some. However, living below your means allows you to continue saving and investing to grow your wealth.
It doesn’t mean you have to give up every possible comfort, miss every concert, or skip out on ever taking a vacation. But living below your means involves denying yourself some pleasures in the present so that you preserve money for retirement when you’d rather not worry about supplementing that income with a job.
One of the best ways to live below your means is to lay down the law with a household budget that you stick to no matter what. This gives you a better view of money coming in and going out, so you can focus more on your needs than your wants and learn to live with a little less, whatever that looks like for you.
You can make investing decisions that get you closer to your retirement goals than timing the stock market perfectly would. And let’s face it: you won’t time it perfectly. But you can manage your risk tolerance or how likely you are to hold onto investments when the market gets shaky.
There are many ways to invest your money – too many to count, even. But there are a few common investments (or asset classes) you should know about:
Aim to invest in index funds as much as possible – it’s a way to purchase across the entire stock market at a lower cost than buying individual stocks. That means mutual funds or exchange-traded funds (ETFs), which are similar to mutual funds but purchased at market price and don’t usually have minimum purchase requirements.
There are many rules of thumb that you can follow to allocate your investments. Try the following for the simplest idea of how much money to invest and where:
No matter the investment types you deem suitable for you, there are two key ideas to keep in mind that go hand-in-hand:
Diversification is how to make your investment portfolio a little more guarded against the usual ups and downs of the market. Putting your eggs in different baskets ensures that you don’t lose all your eggs if one of the baskets breaks.
The goal of diversification is to have investments that don’t all move in the same direction at the same time. By diversifying, you can potentially lower the overall risk of your portfolio while still aiming for substantial returns.
Investing can offer great growth opportunities, but it’s crucial to effectively manage risk in your portfolio. Risk comes in many forms, including market volatility, economic downturns, and even geopolitical events (the COVID-19 pandemic was a combination of all three, for example).
Mitigating risk involves strategies such as asset allocation, regular portfolio rebalancing, and staying informed about market trends and global events.
Younger investors with a longer timeline may be more comfortable with higher-risk investments, while those nearing retirement may opt for a more conservative approach. It’s all about aligning your investment strategy with your goals and comfort level.
Unless you have unlimited cash flow, you’ll probably take on debt occasionally to finance large purchases like a house, a car, or a college education. And that’s perfectly fine – debt, when managed wisely, can be a key part of building wealth.
Here’s why debt can play a crucial role in wealth-building:
However, there’s good debt and bad debt. Good debt refers to borrowing money to potentially increase your net worth or generate future income, like:
On the other hand, bad debt refers to borrowing money for purposes that don’t contribute to your financial well-being or might even hinder it, like:
The distinction between good and bad debt hinges on whether it will serve your financial goals.
Passive income represents income generated with minimal ongoing effort or active involvement. It’s a cornerstone of wealth-building because it continues to produce income while you’re not directly involved with it.
Passive income helps you diversify your income sources beyond your job, with possible sources like:
These all provide diversification and reduce your reliance on a single income stream, making your long-term wealth growth more stable and sustainable.
Passive income also gives you time and freedom, which are two of the main goals of building wealth in the first place. It can even act as a financial cushion, providing a steady income stream during economic downturns or unexpected financial challenges when your earned income might be at risk.
Once you hone in on your goals and start building wealth, you need to keep one hand on the wheel and one eye on the road – that is, make sure that you’re aware of the ongoing status of your financial accounts and that you can interfere to correct or change course when you need to.
These are some great ways to adapt:
Learning how to grow wealth can seem like finding a needle in a haystack, searching for a constantly changing answer. But it doesn’t have to be that way.
One of the easiest way to grow your money is to beat taxes, not to gamble with the market. It’s a smart way to manage your wealth-building strategies all in one place through automation. That way, your mind is always on your money without money always being on your mind.