Do you want to retire young and rich without having to work for money again? If YES, here is how to build wealth from scratch in your 30s and 40s guaranteed.
Life comes in stages; we are born, we go to school, graduate, pick up a job or start a business, and the next thing we know is that we are ready for retirement. Sometimes people who have been caught in the middle of life tend to ask themselves, ‘where did all that time go, how did I get here so fast? I was only born yesterday.’
Because time is so fleeting, and races by without even notifying us, we need to always be on our toes to ensure that we are not caught napping when retirement and old age creep in. Little wonder our parents were drumming the gospel of savings into our ears when we were yet able to bathe ourselves.
The savings advice most of the time never sinks in, and we waltz through teenage years and our twenties full of youthful exuberance and with our finances all in a mess. We reason that we are still young and have all the time to make up for it.
Reality starts to set in for most people when they hit 30, or when suddenly there are kids to take care of, more bills to pay and the future to think about. Either ways, we get to realize that there is a future waiting for us, and that future is not that far away. In fact, if you wake up to this realization in your 40s, then it might be enough to cause you a panic attack.
But nevertheless, it is never too late to start building your finances even if you are in your 30s or 40s. We know that building wealth takes time especially when you have hit the age 40, and you are aiming to retire comfortably. But worry not; as we have outlined a few tips that would help you build your finances even if you still have debts you are lugging around such as student loans, mortgages and childcare.
Principles to Keep in Mind When Building Wealth
Whenever the idea strikes that you have to start increasing your wealth portfolio, there are certain principles you have to keep in mind. There are;
- Endeavor to increase the difference between your income and expenses.
- Save the money saved by cutting down on expenses and grow these savings exponentially.
These principles may look a little too obvious, but these are what other advice you have been receiving hinge on. Check all of them out one after the other and you would come to the same conclusion. They are simple concepts but because most people ignore them, they are not able to build wealth. If you are serious about building wealth, then make these two principles your watch word. In fact print them out and keep them where you can see then continually.
Let us go on now and tell you steps you can take if you intend to start building your wealth from the scratch now that you are in your 30s or 40s.
How to Build Wealth from Scratch in your 30s and 40s Guaranteed
- Stop the reckless spend
This is in fact one of the first advise given to someone who wants to start building his or her wealth from the scratch. That constant weekend clubbing, those beers in the evening, that pretty but hardly needed pair of shoe etc. may be wreaking havoc on your savings.
You could reason that you are earning more, but you have to note that earning more money can be a quite tempting, because the more you have coming in, the more tempted you might be to spend it. When you’re in your 30s, that might mean buying new cars or taking up mortgage on a big house. These things are indeed good, but you should at this point hold your horses.
Lifestyle inflation can be a serious wealth-killer, so it’s a good idea to resist the urge to give in to this temptation. If your earnings are equals to your expenses, then know that you can never build wealth in this way. If you’re not free of student loans or credit card debt at this point, it’s best to make putting those debts on the chopping block a top priority. If you own a home, focusing on chipping away at your mortgage is also a good idea. The more you can streamline your budget, the easier it’ll be to accumulate wealth instead of watching your money go to your creditors.
2. Sell off things you don’t need
There is something about being in your 20s that often goes hand-in-hand with wasting money. This is probably because this is when you first started getting a solid pay packet to do what you want with. You can easily splurge on that latest game console, and you can buy a $200 stiletto that you only get to wear once.
We have all been there. But don’t be deflated yet, those things can still come in handy now that you have decided to start building your wealth from the scratch.
If you have accumulated unnecessary items you do not use or you don’t even need, why not round up all the needless items, whether it be clothes, gadgets and DVDs and sell them at a boot sale, or use an online market place. This is a very good way to make the best out of a bad situation. The money you get from the sales can start you off in building your wealth.
3. Embrace the market
Being in your 30s or 40s is really the right time to start investing in the stock market. At age 30, you should have most of your portfolio in stocks, with about half in U.S. equities and nearly 30% in foreign equity. This is a good and very reliable way to grow your finances. At this age, you should invest mostly in stocks because of their greater potential for long-term gains.
Among those stocks, you should diversify between large, midsize and small company stocks, as well as domestic and international picks. You can up to 70% of your portfolio in U.S. stocks, up to 25% in stocks of developed foreign nations and 5% to 10% in emerging-markets stocks.
Also, you should periodically rebalance your portfolio to make sure you maintain your chosen allocations. Doing so will force you to buy low and sell high. You can invest a little monthly from your wages and before you know it, you have accumulated a tidy nest egg.
4. Save, save and save some more
In your 30s and 40s, you would notice that you do not have much time to make up a comfortable retirement nest egg. When it comes to saving for retirement, there’s really no one-size-fits-all rule. But you can use a retirement calculator to determine exactly how much you need to save in your 30s or 40s based on your current level of savings and how you’d like to live once you retire. The more you can invest now, the bigger your cushion will be when it’s time to stop working.
Increasing your current savings rate by even 1% can have a major impact on your long-term outlook. You have to identify areas in your life where you can save money on. For instance, you can save on vehicles by doing your research; avoid buying crap and start saving a percentage of your income. Once you identify where you can make savings, go on and do it and the money saved will go a long way in building wealth for you.
5. Reduce your debts
It is a fact that you cannot successfully build wealth if you still carry around debts from various areas. You primary goal before you can talk of building wealth is to clear off your debts, be it student loans, mortgage, furniture loans, car loan, you name it.
If you are in the process of clearing these debts, beware that you do not accumulate new ones through the credit cards you hold. If you do have a relatively large credit card debt, look into taking out a balance transfer card. Before you know it, it will be paid off and you will stop being stung by monthly interest. Also, if you are tempted into putting big ticket items on a credit card, make sure you pay off the full balance.
But the best advise for someone who wants to build wealth is, if you cannot afford something, don’t overstretch yourself by using credit. Save up and buy it. Yes it may take longer to get it, but you would be saving yourself a lot of stress in the process.
6. Make budget a priority
If you are really serious about building your wealth, then you have to make budgeting a part of your life. You need to make sure that you know how much food would be enough for you and your family in a month, and endeavor to curtail waste on that.
You also have to learn ways to curtail waste on water and electricity in order to reduce your bill. You should also look for other unnecessary things to trim back. You should also look through your bank statements to know if you are fond of making unnecessary payouts, and endavour to cut those off too. Note that the most important part here is not making the budget, it is sticking to the budget; and to do this, you need a lot of discipline.
7. Find ways to increase your earning
It is a fact that you can only save more if you earn more. If you are trying to build your wealth from the scratch, it is important that you look for ways to increase your earnings. It would be to your best interest to start investing aggressively in your skill set so you can improve yourself further.
You might consider investing in additional training or education to make yourself more marketable. Switching fields completely could be another route to beefing up your paycheck. If that’s not an option, you might want to think about starting a side hustle to bring in more money that you can use to invest and save for the future.
8. Negotiate your salary
If you are a salary earner and not a business person, then being in your 30s or 40s might be a good time to negotiate your pay with your employer, especially if you have not been given a raise in a few years. Come up with a list of reasons why you feel you deserve one – loyalty, skills you bring and ideas you have to improve the company.
Alternatively it might be time to cast your net wider and see what other options are available to you, especially as you’re likely to now have experience. Having other companies looking out for your skill can easily earn you a raise from your current employer. So, either way, make sure you are asking or that you have a reason to ask.
9. Diversify and re-balance your investments
It is said that once you get into your 30s and you have the basics [such as an emergency fund and other necessities] settled, you should beware of taking further risks. While this may be true, but you can still make a little shift and try diversifying your investments.
You can stick with mutual funds and exchange-traded funds. They offer much-needed diversification with relatively low costs. Index funds are simple and relatively stable, making them a good choice for the core of your portfolio. Depending on your comfort level and your know-how, you might consider investing in some members of the Kiplinger 25 too.
10. Get Life Insurance
We all know that death is a life certainty, and we ought to prepare for it. It would not do to save a lot of money into a retirement account or taxable investment account if your loved ones are forced to spend the money down prematurely if you happen to die.
While no one is praying to die prematurely, but if you happen to die without life insurance, your spouse or other family members would have to use your assets to cover your burial expenses or pay off debts instead of holding on to those assets for their own retirement.
Buying a life insurance policy can ensure that the money you’ve been setting aside for retirement can be used for its intended purpose. Term life coverage is typically the most affordable option for 40-somethings, but a whole life policy lets you build cash value.
11. Curb the coffee habit
Coffee shops seem to be popping up in every nook and cranny, taking your hard-earned cash in return for a drink you can comfortably brew on your own. Instead of wasting money everyday getting a cup of coffee where you are chasing the perfect coffee, you save all that money and invest in a decent coffee machine and buy the refill pods online. You also have to look out for other expensive habits you could ditch. While these habits only seem like a couple of quid here and there, over time they can really add up.
12. Get an investment buddy
A recent study from Columbia, Harvard, and Chilean researchers found that when peers monitored one another’s savings progress, average balances doubled. So you need to find a friend that also has the same desire to grow wealth as you have, so that both of you can be a buffer to each other in case anyone starts slacking.
13. Think of an Idea and Sell it
Do you have an idea that sounds crazy but which you feel can actually revolutionize some aspect of life? First make sure you patent it and go on to refine it. Most of the innovations you see today came out as the work of nuts but today, but these presumably crazy inventors are laughing all the way to the bank. If you have what seems to be a good idea, patent it and sell it to increase your wealth base.
14. Increase your emergency fund balance
Having an emergency fund is a great way to ensure that the slightest emergency does not make a mess of your savings and investments. You should have a goal to maintain three to six months’ worth of living expenses in your emergency fund.
As your income and expenses go up, so should the amount in your emergency fund. Worried that all that liquid cash isn’t compounding as it might if invested in the stock market? Then you need to consider other ways to earn more interest on your savings.
15. Monitor and improve your credit
You should check your credit report every year. You can do this for free by visiting AnnualCreditReport.com and viewing a free report from each of the three credit bureaus every year. Regular reviews of your report could help you fix errors quickly, catch an identity thief at work or get on top of a potentially delinquent account. To dispute an error in your report, contact the credit bureau directly. If you notice a problem in one report, check reports from the other two bureaus as well.
Note that your free credit report does not get you a peek at your actual credit score. You’ll usually have to pay a fee to see your FICO score. Monitoring and improving your credit score would serve you well in the event you ever want to borrow money to open a business. If you handle your money well, your credit report would show it. This at least can help keep you in check.
16. Save for your kids’ college
Kids would always go to school, and one of the best things you can do for yourself is to start saving as early as possible for your kids’ college. If you are in your 40s and have kids, the best advice from financial advisers is to start saving as early as possible after your kids are born, even if you can save only a small amount. You can increase the amount you save for college as your income rises. This savings would save you a lot of heartache later.
If you are in your 40s and your kids are near college age and you haven’t saved much for retirement, then it’s not necessarily wise or appropriate to pay for all of their college expenses. If you are in that fix, you can have your kids pay some of their own costs by working during their college years.
17. Know your investment comfort zone
As long investment is concerned, not everyone can take or handle everything. So, the fact you need to grow your wealth should not mean that you have to make investments that would give you sleepless nights. Before you start investing, you should know what your tolerance threshold is, and what you cannot go above. What matters is your age combined with how you feel about investing and the goals you have for the future. Learn to strike a balance with your investing and don’t make it so aggressive unless you have the heart to take the risk.
18. Open an IRA
One other way to build wealth asides your employment-based retirement fund is to open an IRA or individual retirement account. These accounts offer tax benefits to help you save for retirement. Anyone with income can open an IRA, and nonworking spouses can open IRAs as long as the household’s taxes are filed jointly.
When it comes to how you invest within the IRA, consider a target-date fund. You pick a target retirement date, and the assets automatically re-balance as you get closer to retirement. Those (funds) are great options for people who want to dip their toe in the water of investing without having to dedicate a lot of time or effort into designing the strategy.
19. Separate your finances from that of your spouse
A lot of people in their 30s or 40s are already going through rocky marriages. If you are in this boat and you desire to grow your financial wealth, you have to consider separating your finances from those of your spouse. Young couples tend not to have large saving and investment accounts.
Divorce then divides those accounts, and the result may be even less for the individual ex-spouses. Those on the brink of a breakup are therefore advised to keep investments as short and liquid as possible; well, except retirement accounts, especially if employer-matched contributions are involved.
20. Are your finances complex? Get an accountant
When you were in your 20s, your finances were probably rather simple. You may have had just a checking and a savings account and maybe a few bills. When you get into your 30s or 40s, your finances start getting more complex. You now have mortgages, home owners insurance, multiple retirement accounts, college savings plans, maybe even a side-hustle business to juggle.
All these additions to your financial picture will definitely make your taxes more complicated. While you can use software to guide you through the process, a certified personal accountant can make sure that you are not paying more in taxes than you should be and will save you a ton of time. So if you are in this boat, ensure you get this service.