Working hard and saving cash from your salary just isn’t enough to make you rich, even if you get a good job and work for years. This is because of inflation. Over time, each dollar that you save becomes less valuable in terms of purchasing power. This happens slowly but surely, year after year. It eats away at the cash you’ve worked so hard to save.
So what can you do? Well, there are a few things that you should consider. The common denominator between the different strategies that we’ll consider below is that they make your money work for you, generating income and interest (or cutting expenses) in such a way as to reinforce your earnings and hard work.
But there are a lot of very different ways to pull this off. Some will appeal to typical hard-working folks who want to grow their wealth slowly and steadily. Others will be more appealing to those who are willing to take risks to achieve aggressive growth.
Real estate, assets, and your financial future
If you’re paying rent, you have an expense that isn’t doing much for you in the long term. When you pay rent, that money is gone; it gets you nothing more than a place to live this month.
But what if you saved up enough cash for a down-payment on a home that you own? You’d still be paying every month in the form of a mortgage payment, but your mortgage payments would eliminate the debt on your home. Eventually, you wouldn’t have to pay them anymore; meanwhile, you could sell your home and get money back for it. Not so with rent!
That’s why you need to consider buying a property when you are able to. If you understand how to get a home loan and use it to grow your wealth long-term, you’ll be a lot better off years down the line.
Of course, you’ll have to evaluate your own situation. Depending on where you live, the cost of homes, your income, and what else you could do with your savings, it may make more sense to rent in select situations. Be sure to do the math and make a wise decision for your future.
Once you have a home of your own, you could enter the real estate market with your extra cash. You could get a rental property and earn passive income, or — if you have a taste for risk — you could try flipping homes by buying fixer-uppers, investing in them with repairs and upgrades, and then reselling them quickly for a profit.
Stocks and bonds
Experts agree that if you’re going to grow your net worth, you’re almost certainly going to have to invest.
Putting your money in savings accounts is okay — they generally have better interest rates than checking accounts — but your best interest rates are going to be found in the stock market. You should take full advantage of tax-advantaged accounts like IRAs, Roth IRAs, and 401(k)s, and you should be saving steadily and investing in a diverse portfolio of reliable stocks and bonds.
Reliable stocks and bonds will keep your risks lower, but they’ll also limit your profits. If you want to make money faster, you’ll need to adopt a more aggressive strategy. The ultimate example here is day trading.
If you’re day trading ETFs, stocks, bonds, and other forms of investments, you’re making moves throughout the day. You’re trading a lot, making short-term bets, and taking bigger risks that passive investors would have the stomach for.
This can mean big losses, but it can also mean big profits — provided that you’re careful, use a consistent and proven strategy, and never walk away from your brokerage client with an open position. Day traders should be very careful (especially when using margin strategies), but the investing career of a day trader is a powerful option for those who can manage it.
Ultimately, your methods for building wealth will all involve passive income, interest, or an appreciating asset (or all three) — but when it comes to how much risk to take, the choice is yours.