4 Wealth-Building Habits You Can Start Practicing Today
Often, when we think about what it means to be wealthy, we focus on the outward signs—a flashy car, luxurious home or high-end clothes. But being wealthy is about more than how you spend your money. In fact, it has much more to do with how you save it.
It comes down to a set of wealth-building habits. It's about repeatedly making choices that promote your long-term goals rather than achieving a certain level of income. Regardless of whether you think of yourself as wealthy, you can start implementing these small but powerful wealth-building habits that will help you on the road toward financial success.
1 Prioritize the future over flash
Building wealth over time requires living within your means so you can save more than you spend. Often, this means forgoing things you want and putting your goals for the future first.
There's nothing wrong with the occasional purchase of a high-ticket item you've saved up for. The key is to understand the difference between your needs—mortgage, food and debt payments, for example—and your wants, like a luxury car, expensive handbag or lavish vacation.
Once you establish a budget, stick with it. Don't be tempted to carry high-interest debt to fund your lifestyle. Instead, focus on making the right financial decisions with the future in mind. These small wins add up over time.
2 Invest based on your goals
Learning to make money work for you is an extremely helpful skill in growing wealth. Investing your money can be a critical part of this strategy, thanks to the power of compound interest.
Let's say two people both save $3,600 annually for 25 years. One invests these savings, while the other keeps theirs in a traditional savings account. We'd expect very different end results. The person who adds to a traditional savings account earning little in interest would have approximately $90,000 saved in 25 years.
Assuming a hypothetical 8% average growth rate in the stock market, the person who invests their money for 25 years would have roughly $284,236 saved, more than three times as much as the traditional saver. This is just an example of how powerful smart investing can be in helping you build long-term wealth.
3 Use debt smartly
Many people draw the sweeping conclusion that debt is bad. It can certainly be burdensome if handled poorly, but debt can also be a helpful tool if you know how to use it wisely and responsibly.
For instance, you might take out a student loan to pay for medical school, but you know your goal is to become a surgeon. A medical degree is part of the cost of entry into the field, and you'll be earning the salary you want for most of your career. If this is your goal, it's worth taking on this debt in the short term for long-term gain.
If it's your goal to become an entrepreneur, you'll likely need to secure loans to start your business and grow it to the next level. Even if you don't intend to become self-employed, you might use debt by paying for many expenses with credit cards so you can collect points and rewards, then paying those card balances off each month.
4 Become comfortable with negotiating
As you become more secure in your finances, it's natural to stop looking for deals everywhere—after all, if you can afford the price, why make the extra effort to seek a lower one? But learning not to take the first offer presented to you can help you save in ways you might not have expected.
There are many businesses that offer the same service, so it's important to shop around for the best product at the lowest price. Start by looking at your auto and homeowners insurance policies each year to see if you can get a better rate. When interest rates are low, consider refinancing your debt.
The lowest-cost approach won't always be the best option, but it's usually worth investigating whether there's a way to get what you're looking for and still save money. By lowering your regular bills, you'll be able to save or even invest this money to continue building wealth.
Making these habits your own
Everyone's in a different place on the path toward their financial goals, and definitions of wealth vary from person to person. Your goals will be specific to you, and so will the way you apply these habits to your day-to-day life. The key is to learn and practice the basic principles of building wealth every day so they can become a natural part of how you think about and act toward money.
A few financial insights for your life
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.