There are several ways to create wealthfrom the creation of a successful start-up to receiving a heavy legacy.
However, for the average consumer, getting rich usually requires a longer-term strategy. This can include a number of things, such as budgeting, investing, and managing your money well.
The most important factor for creating wealth: your salary, according to 67% of millennials and Gen Z, a recent survey from the financial services company Empower found. Younger generations have chosen wages over other wealth-creating factors, such as being debt-free, job stability, and living below their means.
While earning a high salary can play an important role in growing your wealth, it won’t make you rich on its own. Here’s what it takes to build your net worth.
Your salary alone says little about your overall wealth. A high salary may indicate a better financial situation, but if you don’t use that money effectively, it may not contribute much to your net worth.
“The real key to building wealth is really how much of that check you keep,” Scot Johnson, chartered financial analyst and chief investment officer at Adell, Harriman and Carpenter Inc, told CNBC Make It.
You can keep some of this money in a savings account – you should always maintain cash reserves for emergencies — but investing in assets like stocks, bonds or real estate will help your money grow in the long run.
If the money you save is just under your mattress, your purchasing power could decline over time due to inflation. But invest in low cost index funds is a proven test, self-taught method approved by millionaires to create wealth with virtually any income.
Index funds are a convenient way to invest because they are often inexpensive and give you exposure to a variety of stocks, creating automatic diversification. This way your portfolio is not tied to the success of a few specific companies, making it more resilient to any market volatility.
Even if you can’t afford to save a lot of money, it’s a good idea to make a habit of investing what you can. Unlike money deposited in your checking account, investments benefit from the power of compound interestwhich happens when interest accrues on your returns as well as your initial investment, so your money grows faster.
“Building wealth is about balancing life here and now and setting aside big savings to grow for you,” Johnson says. “The longer these savings grow for you, the more likely this stack will become.”
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