How To Manage Money And Build Wealth: 5 Ways To Get Started

How To Manage Money And Build Wealth: 5 Ways To Get StartedHow To Manage Money And Build Wealth: 5 Ways To Get Started

Everyone — or at least most people — would like to manage their money wisely and build wealth.  

Maybe it’s because wealth makes life easier or it’s something to do with evidence suggesting that, on average, wealthy people tend to be happier.    

Regardless of the reason, many people aspire to be wealthy. But what exactly is wealth?

From a financial standpoint, wealth is the total of all your assets less any debts.

Based on this definition, building wealth requires having smart habits that allow you to grow your asset balance effectively. Couple this with some good money and debt management, and you will be well on track to building your financial success. 

Although not an easy pursuit, building wealth is possible. Here’s how to get started. 

  1. Have a steady income

Having a steady, reliable income is the first crucial step toward securing your finances, especially when you’re just starting out.

There are three broad types of income: earned income, passive income, and investment income.

  • Earned income is the money you get from paid work. For most people, this income comes in the form of a salary, wages, tips, bonuses, or the money made from self-employment.  
  • Passive income consists of earnings that are acquired with minimal effort. In other words, the income doesn’t depend on the number of hours invested, but rather on the capital investment. Examples of passive income include rent, stakes in limited partnerships, and royalties.
  • Investment income (a.k.a. portfolio income), which comes from owning or selling investments. The income can be from dividends, interest, and capital gains, for example.

Get your income in order and you’ll be in a better position to start building wealth. Better yet, have multiple income streams to really create a solid foundation for wealth building.

  1. Track your spending

Most people in the world don’t have a clue when it comes to managing their money. But, you need to know how you’re using your money if you want to have a real shot at building wealth. You can start tracking your spending and other non-necessities (think luxury shopping, daily coffee, entertainment…) using:

Remember to keep your audit transparent; you have to be honest with yourself before you can improve your finances. 

  1. Create a realistic budget

Creating a budget is a key element of any wealth-building strategy. A realistic budget will improve how well you control your finances and, ultimately, help you achieve your financial goals.

The keyword here is realistic.

  • Don’t be too strict when budgeting; you probably won’t stick to your budget if you suddenly decide to cut out things you spend on regularly.
  • Start with the basics like food, transport, utilities, and any debt repayments. You can then build out the rest of your budget by adding in non-essential expenses and more importantly, savings.
  1. Build your savings

Starting is typically the hardest part of any process, including saving. Nonetheless, being systematic helps.

When saving:

  • You can use a fixed ratio such as the 50-30-20 rule (50% of your income to essential spending, 30% to discretionary or luxury spending, and 20% to savings).
  • Adopt a system that includes an emergency fund for a rainy day.
  • Make it a habit to set aside your savings before you start spending for the month.
  • Appreciate your progress, no matter how small. Small changes add up and lead to big progress.

While immediate luxury spending sounds amazing, building wealth and being able to afford even bigger luxuries is better. 

Once you successfully get into the habit of spending wisely and saving regularly, you can start looking at building your wealth through investing.

  1. Start investing

Investing in instruments such as stocks, mutual funds, cryptocurrency, or even fixed deposits for your retirement, home, education, and other long-term milestones can go a long way in securing your financial future.

Each investment choice comes with its unique degree of risks/rewards, and so you should:

  • Research and understand the pros and cons of each option before making any decisions (you may find these insights on creating an investment portfolio from scratch useful). 
  • Choose an investment option that suits your risk appetite, financial goals and income.

Keep in mind that you don’t need a huge investment to start participating in the financial markets. A good example of this is Chipper Cash’s fractional stock investing, which allows people to buy shares with as little as $1.

Time to start building

Following these tips won’t make you wealthy overnight, but it will help you succeed. Add research, financial literacy, patience, and discipline to the mix and it’s possible to build sustainable wealth.  

There’s a saying that goes “The best time to start was yesterday. The next best time is now.” Sign up on Chipper to take advantage of the available investment options and start your wealth-building journey today.