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One of the most effective ways to build wealth is by investing your money. But how should it be done, how long should it take and when should it start?
Working is a reliable way to earn money and gradually increase your wealth over time. However, there are ways to invest the money you earn to grow your wealth faster and help you reach your financial goals, such as buying a home, starting a business, or retiring comfortably.
Before you invest, you should build an emergency fund of at least 3-6 months of living expenses for these unforeseen living situations. When you are ready to invest, it is important that you consult with your financial planner or investment advisor to find the strategy that best suits your goals and risk tolerance.
Here are some common investments and tips to follow.
How should I invest?
Investing to build wealth takes many forms. While it is advisable to consider a mix of investments, including various funds, accounts, and assets, the most effective wealth-building strategy involves two major actions:
- pay yourself first: Strategies to put money into investment and savings accounts before paying off or adding new debt.
- Savings automation: A strategy that automatically reserves a predetermined amount of money on a consistent schedule.
From there, we recommend that you consider investing your money in the following ways:
- Participating in retirement savings programs: 401(k), 403(b), Employer’s Agreement, Individual Retirement Account (IRA), Roth IRA and Thrifty.
- own a high-yield savings account: Certificates of Deposits (CDs), Stocks, Mutual Funds, Annuities, Personal Development Accounts.
- own real estate: Investing in real estate builds wealth through equity. With the help of a down payment, you can get into your first home.
Given all these options, investing may seem intimidating. Luckily, the following experts are ready to help you make the best decision for your situation.
- Certified Financial Planner (CFP).
- Certified Financial Assistant (CFA).
- Financial Advisor and Broker; Broker Check® Powered by FINRA: A free online tool used by investors to research financial advisors, brokers, and other companies.
- Financial Coach and AFCPE®: A non-profit financial counseling organization with a mission to empower all people with resources designed for lasting financial well-being.
The National Association of Personal Financial Advisors and Financial Planning Association can help you find a financial planner in your area.
How long does it take to build wealth?
The best way to reach your savings goals is to keep saving and harness the power of compound interest to build wealth faster. Compound interest is interest earned on interest (see chart below).
Once you know how much you want to save, you can use the Rule of 72 to more accurately calculate when you’ll reach your savings goal. A simple math tells you how many years it would take him to double his investment, given the interest rate.
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