By Blake Herzog
We’ve all had a couple of rough years here with inflation and interest rates eating into our nest eggs, regardless of their size. Our minds are on making ends meet and trying to stay out of debt, while actually building wealth feels like a pipe dream.
But you can still build your savings up this year — no matter what’s going on in the wider economy — through a combination of planning and taking a few risks.
Know your net worth
First, you’ll need to add up the value of your home and vehicles, your savings accounts, investments, 401(k) and other retirement accounts and anything else you own that creates wealth or value.
Then you must subtract all debts including mortgages and auto loans, credit card and medical debt, student loans and anything else you owe.
In some cases this number may be disheartening, but at least you’ll have a starting point.
Set your financial goals
Chart your course toward building wealth by setting your priorities, whether they involve saving up for a house, retiring high-interest credit card debt or retiring yourself from the workplace by a specific date.
Decide on your short-, mid- and long-term goals, and then create a working monthly budget setting enough aside for saving and investing to those goals.
Start increasing your income ASAP
This starts with your full-time job, but depending on how much debt you need to pay off you may want to find a “side hustle,” which doesn’t have to include too much hustle if that isn’t what you’re looking for. Build up portfolio income from interest on savings and dividends from investments and pursue passive income options wherever you find them.
Automate your savings
You probably set a target savings rate as one of your financial goals, so now you can make sure you meet it by directly depositing part of your paycheck into your savings account, 401(k), mutual fund and/or the account where you keep your “rainy day” fund.
Maintain an emergency fund
Speaking of rainy-day funds, they’re another tool for building eventual wealth by reducing or eliminating the need to rely on credit during a crisis like a major car repair, medical bills or an unexpected furlough or layoff.
The standard advice is to have enough to cover three to six months’ worth of expenses, but don’t stress yourself out too much if that seems unattainable.