Almost everyone wishes to accumulate wealth and become financially independent. Some people think that in order to become rich, one must be a high-income earner or be born into a wealthy family. However, that’s not necessarily true. There are many opportunities throughout life to accumulate wealth, as long as one seizes these opportunities and perseveres, their wealth will grow over time.
In fact, wealth accumulation is within one’s control and does not depend on being born into a wealthy family. Most millionaires are self-made individuals. According to data from LendingTree, the top five popular wealth accumulation strategies used by Americans currently include:
– Owning real estate: 36%
– Saving for retirement: 33%
– Depositing money in online savings accounts: 29%
– Investing in the stock market: 24%
– Collaborating with financial advisors: 17%
People committed to wealth accumulation may combine multiple strategies throughout their lives, which is normal. “There’s no one (wealth accumulation) method that’s more effective than another,” registered financial planner Adrienne Davis from Zenith Wealth Partners told CNBC Make It. “There’s no one-size-fits-all solution.”
Davis recommends starting to contribute to retirement savings accounts “as early as possible.” Even if you can’t allocate a large portion of your income to investments, spending more time in the market can allow your funds to grow longer through compound interest, resulting in returns.
For Americans, contributing to an employer-sponsored 401(k) account is a simple way to start. Davis noted that while many companies provide matching funds based on what you contribute to your employer-sponsored 401(k) or other plans, it’s still worth contributing even if there isn’t matching funds, as you can still benefit from compound interest and tax advantages.
Financial expert and self-made millionaire Ramit Sethi suggested in a previous interview with CNBC Make It that even if you can’t initially contribute a lot of funds, developing a habit of regular savings and investments is beneficial.
“If you’re in your 20s, even if your income isn’t high yet, you have a fantastic opportunity to develop the right habits,” he said. “As your income grows in your 30s and 40s, you can increase your wealth numbers.”
If you want to accumulate wealth, consider first putting bonuses and other windfalls into savings accounts or investing in mutual funds or other low-cost investment options.
While starting to invest for the future is a good thing, Davis also suggested laying a solid financial foundation first, including establishing an emergency fund and paying off high-interest debts.
To build up an emergency fund, Davis encourages clients to start by opening a high-yield savings account and setting up automatic deposits from their wages. Experts typically recommend saving an amount equivalent to three to six months of expenses to cover significant expenses like unemployment, unexpected injuries, or car repairs.
Davis noted that while building an emergency fund, one should still save for retirement accounts. Delaying retirement savings completely means missing out on valuable compound interest.
While you may not be able to maximize retirement savings during this time, Davis recommended that those receiving employer matching contributions on their 401(k) should still contribute enough funds to get the full match.
If you have debt, don’t overlook it in favor of saving. “Interest payments can become overwhelming,” Davis said.
Collaborating with a Certified Financial Planner (CFP) or other financial advisors may also be beneficial as they can help tailor wealth accumulation strategies to your specific needs.
Building wealth is a slow and steady process unless you’re the one in hundreds of millions who buys a winning lottery ticket. If you want to succeed, you need to think long term, keep saving, take reasonable risks, and consistently track your progress.