Four Wealth Building Habits for the New Year

Wealth Building Tips to Create a Strong Foundation to Reach Your Financial Goals

Though it may sound counterintuitive, consistently following habits create freedom in your life. Of course, it takes patience and discipline to put those practices in place. If you want to have more energy, adopting habits like regular bedtimes, exercise and healthy meals will help get you to that goal. The same is true for your finances. If you want to have more financial freedom, implementing smart wealth-building habits creates a solid foundation from which to build your wealth now and in the future.

As we approach the New Year, make a commitment to establishing strong wealth-building habits in your daily life. Read on to learn about four habits you can begin implementing right away.

Get to Know the Good and the Bad of Debt

Most people are familiar with bad debt, including debt associated with credit cards, payday loans, and auto loans. These debts typically come with a high interest rate and are difficult to pay back, and because of that, they usually end up costing the borrower much more than the original amount.

However, did you know some debt is considered good? For something to be considered good debt it must be building equity or adding value to your life in some way. Student loans, mortgages, real estate investments, and small business expenses are some examples of good debt.

Some debt is required to establish a credit score, which is needed for you to buy a house or car. It can impact your interest rates, as well. Someone with better credit can secure lower interest rates than someone with a low credit score. You don’t need to fear debt; you just need to understand how to manage it so that it doesn’t control your finances.

Pay Your Future Self Now

One of the most important wealth-building habits is also one of the oldest: pay yourself first. Before you pay the monthly bills or make any discretionary purchases, you should set aside a portion from each paycheck that goes straight to your savings. Ideally, you would be squirreling away between 10-20 percent of your pay.

Of course, every person’s financial situation is unique. If you can’t afford to save that much, do what you can. Establishing the habit of paying yourself first is more important than the actual amount. If you save a portion of each payment, you will be consistently growing your savings over time. As you advance in your career, your pay will most likely increase as well, allowing you to save more as the years pass.

Develop a Financial Plan

Before you can achieve your money goals, you need to determine what they are. Once you have a vision for your financial future, you can start developing a strategy to make that vision a reality and wealth-building habits are likely to help you along. Getting started is often the most difficult step, so start right where you are by calculating your current net worth. To do so, you’ll need to take all of your assets (real estate, savings, etc.) and subtract any liabilities (debt, mortgages, etc.). That resulting sum is your net worth.

Now that you know what you currently have, it’s time to figure out what you want. Remember to include short- and long-term goals in your plan. You’ll need both to get you to your goals and reaching the short-term goals will help you keep up the momentum as you work toward your overall vision. Think big and strategize around those. Even goals that feel out of reach become more attainable with a plan.

There’s one critical element of your financial plan: flexibility. The plan needs to be able to adapt with you as you experience life changes. You should review your financial plan at least once a year to make sure your goals still make sense. An up-to-date plan coupled with wealth-building habits creates a solid foundation and increases your chances of success.

Balance the Radical with the Rational

Saving is the cornerstone of your wealth-building plan, but how you save is just as important as what you save. Because of dismal rates, putting your money into a low-interest savings account won’t yield much of a return. For example, if you have $10,000 in a savings account, you will earn a mere $18 in interest over the course of a year using the national average interest rate (0.18 percent).

Investing is a good option if you’re looking to give your wealth-building strategy a boost. Many people find the stock market intimidating, but it doesn’t have to be. Even the safest stock options are likely to provide a much higher rate of return than a traditional savings account. If you go this route, make sure to diversify your portfolio based on both your risk tolerance and overall financial goals. What’s more, you will also be reaping the unparalleled benefits of compound interest over time.

Don’t limit yourself to the stock market. You should also consider the future value of investments such as real estate, art, start-ups and other investment opportunities as you consider wealth-building habits to implement.

Are You Developing Strong Wealth Building Habits?

As we ring in the New Year, commit to focusing on yourself and your finances. Put the wealth-building habits above into practice and see how your financial situation evolves. It’s also important that you stay up to date on the latest trends, strategies, and tools when it comes to wealth building. You can increase your financial literacy by listening to podcasts and reading articles or blogs that cover financial topics. (You can check out all the articles on the Arbor Capital Blog here.)

Establishing wealth-building habits is one giant step in achieving your financial goals. If you’re looking for a trustworthy partner to help you on that wealth-building journey, the experts at Arbor Capital are here for you. To learn more about the services we offer and begin a conversation with a professional financial expert, reach out to us today.

At Arbor Capital, we can help you make the most of your inheritance through personalized guidance and wealth management solutions that serve your unique situation and financial goals. Contact us today to learn more about the services we offer and whether we might be the right partner for you.