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Building wealth isn’t easy, especially if you’re not rich to start with. However, it’s not impossible. Every year, scores of people are able to reduce their spending and debt and find ways to accelerate their savings and investments. If you currently aren’t earning that much – and many are in that boat due to the coronavirus’ impact on the economy – building wealth will be more challenging and require deliberate decision-making and intensive time management. Nonetheless, watching your net worth climb is definitely within your grasp if you’re willing to work for it. Here are five easy tips on how to build wealth with low income.
1. Make a Budget
If you want to build wealth with low income, the first thing you’re going to need is a plan. Even if you weren’t intending to build wealth, budgets are important right now, especially in the wake of the ongoing coronavirus pandemic. A sound budget that identifies all your expenses and income streams will be a critical tool in your efforts to build wealth. Your budget will give you grounded truth on your financial situation, including its strengths and vulnerabilities. Once you develop a budget and have good visibility into your financial situation, you’ll be ready to take action to begin building wealth. You’ll also be able to use your budget to gauge how your efforts are progressing.
2. Slash your Expenses
When you’re figuring out how to build wealth with low income, one of the first things you’ll need to determine is what expenses you can cut drastically. The lower your monthly expenses are, the more money you’ll have on hand to save and invest. One of the first things you should look at is transportation. Buy the least expensive, most reliable automobile you can afford; buying a cheap car with cash will help you avoid monthly payments that you could otherwise use for savings and investment.
Next, consider how much you’re spending on housing expenses. Taking steps such as finding a cheaper apartment or downsizing your home (or your ambitions for a near-term home purchase) can also help you free up your capacity to build wealth. Finally, analyzing your budget and cutting down on superfluous expenditures, such as work lunches and the plethora of streaming services you subscribe to, will put you on a path to more effective saving and investing.
3. Automate, Automate, Automate
Once you cut your expenses and increase your capacity to save and invest, you need to start actually saving and investing. One of the best, low-effort ways to do this is by automating your savings and investment activities. Automating your financial transactions will ensure they happen each month, whether you’re paying close attention to your finances or not; you’ll build wealth without even knowing it. There are several effective ways to automate saving and investing actions. For example, you could have a sum taken automatically from each paycheck and put into an IRA, 401(k), or some other type of account. Additionally, you could use your bill-paying service to allocate money into your savings or investment account each month. Apps such as Acorns will invest money automatically that would otherwise end up as loose change in your sofa. Automate your savings and start building wealth.
4. Increase Your Income (or Add Income Streams)
Another important step in building wealth when you have low income is to find ways to increase the overall income you have coming in each month. Even modest increases in income will accelerate your capacity to build wealth over time. There are many different ways to increase your income. For example, if you’re an hourly employee, you could attempt to work more hours or get more overtime. Alternatively, you could seek a promotion; or, find a comparable position working somewhere else making more money.
You could build additional income streams to increase the amount of money you’re earning each month. For example, you could get a “side hustle” or part-time job to supplement your income. People often sign up to work for a rideshare service such as Uber or Lyft to earn more money or become freelancers to put their skills out for hire on sites such as Upwork or Fiverr. Alternatively, you could earn more money by renting out space in your home, garage, or even your yard, and start speeding up how fast your wealth accumulates.
5. Get Help
When it comes to making strategic long-term decisions about your financial well-being, you should never go it alone. Instead, seek out professional help from trusted financial experts. Financial planners, accountants, and credit counselors can provide you the expertise and advice you need to make a solid financial plan; some may even be specialized to instruct you on how to build wealth with low income. Trusted financial advisers will be able to help you make a plan, and be good sounding boards for assessing that plan over time.
Start Building Wealth as Soon as You Can
Even if you have a low income, you can build wealth over time, and the sooner you start, the better. These five tips can get you on the road to saving, investing, and reducing your debt, and help you get the financial security that so many dream about within your sights.