Playing the Long Game: How to Build Your Wealth Over Time

A lot of people aim for riches, but oftentimes without a plan. If only it was that simple, that we could rub a magic lamp and have more riches than we can imagine. But, as we all know or at least I hope we all know, building wealth typically requires a significant amount of time and effort, it requires patience, discipline (delayed gratification), and tunnel vision. Wealth does not appear overnight, but is the result of continuous effort, planning, and strategic decision-making over a period of time. To build wealth over time, you have to have good habits so let’s discuss some helpful tips to get you started on that journey:

Come Up with a Clear Financial Vision & Set Goals

A vision is the most critical part to building wealth, it allows you to envision where you want to be and will keep you accountable to create a plan on how to get there. You want to be sure that your goals are SMART (specific, measurable, achievable, relevant, and time-bound) because it can help you stay on track. For example, goals such as purchasing a home, paying off your student loans, saving $10,000 in a specified time frame are all SMART goals and will help you measure your progress. When you have a clear financial vision and set goals that are in line with that vision, you'll find yourself feeling more motivated and more likely to achieve those goals.

Avoid Keeping Up with the Joneses

To build wealth, you have to do almost the opposite of what everyone else is doing. Most people spend money faster than they earn it and they spend significant amounts of money on items and services to appear rich, but if you want to build wealth, prioritize living below or at least within your means. Avoid any excessive unnecessary expenses, create a budget and stick to it. This will keep you out of debt and on track to having financial freedom. When you live below your means, you have more money to save and invest for your financial future…so essentially your money will be working for you.

Save & Invest

It’s simple really, even though it is challenging at times because of expenses but aiming to save and invest any disposable income is the key to building wealth. The earlier you begin to save and invest, the more your funds will grow. By investing your money, you can earn profits and possibly generate additional income through the growth of your initial investment via dividends. Also, compound interest will essentially reward you for saving and investing early because your profit will start to make you more profit. Consult with a financial advisor to come up with a solid investment plan, but a good place to start is to consider investing in companies that you like and spend money on, or low-cost index funds or exchange-traded funds such as the SPDR S&P 500 (SPY).

Diversification

No one can predict that ONE investment that will bring you profit every single year, and that is where diversification comes in. Diversification refers to allocating your funds across different asset classes, such as stocks, bonds, real estate, and commodities. When you diversify your portfolio, you are reducing the risk of losing money in any single asset class. Diversifying your portfolio often leads to higher returns and minimized volatility, because you are not relying on one investment, such as the stock market or a specific sector of that market.

Reduce Tax Liability

Paying less taxes will always put more money into your pocket, so consider tax-advantaged accounts such as a 401(k) or an IRA due to contributions to these retirement accounts being tax-deductible, and taxes on earnings are deferred until withdrawal, which will allow your investments to grow faster. You can also consider a health savings account (HSA) which also offers several tax benefits because contributions are tax-deductible, earnings on the account grow tax-free, and withdrawals are tax-free when used for qualified medical expenses. If you are an investor, you can also consider a strategy known as tax-loss harvesting which is essentially selling your losing investments to offset capital gains and reduce your tax liability resulting in a lower taxable income, and possibly a lower overall tax bill.

Protect Your Assets

Another crucial part of building wealth and maintaining it is to protect your assets. Consider purchasing insurance policies, such as health, life, disability, and liability insurance, to protect yourself and your assets from unexpected circumstances. You can also consider creating a trust to further protect your assets from lawsuits and creditors, and other potential threats, which will provide you with peace of mind.

It takes time and dedication to build and maintain anything worth having. With the right strategies in place such as having a clear financial vision and setting goals, living below your means, saving and investing, diversifying your portfolio, reducing your tax liability and protecting your assets, you’re on the path to financial stability and financial freedom. Rome was not built in a day but…eventually it was built, so if you don’t see your wallet overflowing, stay the course and it will come.