Asset Accumulation

Top 12 Principles For Wealth Building For Youngsters

By Aaron Wiese November 1, 2023 19 Min Read

Getting rich may be something lots of peoples dream about, but it’s not easy. You’ll need time, hard work, and self-control to make it happen. So, don’t fall for quick-fix tricks or deals that seem too good to be true; they can lead you down a bad road.

The bright side is, there are ways and plans that can assist anyone in growing and keeping their money for a long time. Plus, if you start using them early, your odds of success go up.” To sum it up, growing wealth is challenging, but with patience and the right steps, it’s possible.

In today’s world, it’s more important than ever for young people to learn how to manage their money and build wealth. The ability to create financial security and achieve your dreams is a skill that everyone should have, no matter where you come from or what you want to do in life. This guide is here to help youngsters, no matter where they are in the world, understand the top 12 principles for wealth building

Understanding Wealth Building

Understanding Wealth Building is about knowing how to make your money grow. It’s a step-by-step process that anyone can learn. First, you need to save some money. Then, you invest it wisely. Over time, your money can multiply. For example, if you save $100 and invest it, it can become $110 or more. The key is to be patient and learn about where to invest. With the right knowledge, you can build wealth no matter where you are in the world.Building wealth

Basically, it’s making your money do the hard work, instead of you working hard for money. Building wealth is like a trip, not a finish line. The sooner you start this journey, the better your chance of success

Why Starting Early Matters

Starting early is a key factor in building wealth. When we begin sooner, our money has more time to grow. This is often referred to as the “power of compounding.” It means your money can make more money over time. When we start late, we miss out on this advantage.

Here are key reasons why

Begin Now, Reap Rewards Later: Starting early is like planting seeds for a future harvest. When it comes to wealth building, the sooner you start, the better.

The Power of Time: Time is your greatest ally when it comes to building wealth. It allows your money to grow more and accumulate over time.

Compound Interest :Compound interest is like magic. It’s when your money earns money. The longer your money stays invested, the more it multiplies.

Less Pressure: When you start early, you don’t need to save as much every month. You can take smaller steps and still reach your goals.

Room for Mistakes: Starting early gives you room to learn from your financial mistakes. You have time to recover if things don’t go as planned.

Peace of Mind: Building wealth early brings financial security. It means you’re ready for whatever life throws your way.

Principle 1:Earn Money

Start with Earning: Earning money is the very first step in the journey of building wealth. It’s where everything begins.

Create Opportunities: You can earn money through a job, a business, or freelancing. Opportunities are everywhere; you just need to seek them.

Consistency Matters: Consistency is key. Regular income provides you with a stable financial base to build upon.

Save and Invest: Once you earn, it’s important to save and invest wisely, setting the stage for your future wealth.

You’ve likely seen those graphs that show how even a small amount of money, when saved and let to grow over time, can become a lot. But here’s the key question they don’t answer: How do you actually get that money to save in the beginning?

Earning Money in Two Ways: To make money, you can go down two paths. The first is through ‘earned income,’ which is what you get from working. The second is ‘passive income,’ which comes from your investments.

Starting Point for Passive Income: You might not have passive income right away. First, you need to earn some money so you can begin investing. It’s like having money to plant seeds that will grow into a money tree later on.

Principle 2:Set Goals and Develop a Plan

Have you thought about what you want to do with your money? Do you want to retire comfortably, maybe even earlier than most? Perhaps you’re thinking about helping your kids go to college or getting a second home. Or maybe you’re all about giving to charity.

Setting goals is like picking your destination on a map. It’s your first step in building wealth. Once you know where you’re going, it’s easier to figure out how to get there. So, decide what you want, and your plan will follow.

After you’ve set your goals, it’s time to create a plan to make them happen. This plan might include making a budget to save money, boosting your income through education or a better job, or investing in things that will grow in value.

Your plan needs to be real and able to change. Check how you’re doing regularly and make changes if needed to stay on the right path. It’s like steering a ship to reach your goals.

Principle 3: Save Money

Earning Money Is Just the Start: Just having money isn’t enough to get rich. If you spend all of it, you won’t build wealth.

Save for Important Stuff First: Before anything else, make sure you have money saved up for things like bills, rent, or if something unexpected happens. These are like the most important things to keep your money safe.

Listen to the Experts: Smart people who know about money say it’s a good idea to have enough saved for a few months (like three to six) of your income. This way, you’re ready for anything that comes your way.Save Money

To save more money for wealth building, try these steps

Keep an Eye on Your Spending

Pay attention to how you spend your money for at least a month. You can use fancy financial software or simply carry a small notebook in your pocket. Write down everything you spend, even the tiniest amounts. You might be amazed to discover where all your money is disappearing to.

Discover and Cut Unnecessary Expenses

First, pinpoint the extra spending and get rid of it. Next, split your expenses into two categories: things you need and things you want. The basics like food, a place to live, and clothes are needs. Things like health insurance, car insurance if you have a car, and life insurance if your family relies on your income are needs too. Most other spending usually falls into the “want” category. So, focus on the needs and trim the wants to save more.

Define Your Savings Goal

First, figure out how much money you can save each month. Then, make a plan to save that amount. Saving doesn’t mean you must be super frugal all the time. If you’re hitting your savings goal, treat yourself occasionally. It’s like a little reward for your hard work, and it keeps you motivated.

Automate Your Savings

Making saving effortless is a smart move. You can team up with your employer or bank to have a part of your paycheck whisked away into a separate savings or investment account every month. Likewise, for retirement, you can set up an automatic system to take money from your pay and stash it into your employer’s 401(k) or a similar plan. Financial experts often suggest contributing at least enough to grab your employer’s full matching contribution. This way, your savings grow without you even noticing. It’s like magic, but it’s all about setting things on autopilot for a secure financial future.

Principle 4: Invest

After you’ve saved some money, the next move is to invest it for growth. Saving is good, but bank savings often give very little extra money, and your cash could lose its value due to rising prices over time. So, it’s smart to think about investing to make your money work harder and grow over time.

Diversification is a big deal, especially for new investors. In simple terms, it means not putting all your money in one place. Investments don’t always move together. Sometimes, when one goes down, another goes up. Like a seesaw, when one side is down, the other is up. So, by spreading your money around, you can balance the good and the not-so-good times. It’s like having options, so you’re not stuck with just one thing.

Mutual funds are like baskets filled with various things. When you invest in them, you spread your money into lots of different things. It’s like having different flavors of ice cream instead of just one.

But here’s the trick: to be even safer, don’t put all your money in one basket. It’s better to have two baskets – one for stocks and one for bonds, for example. It’s like having two different kinds of toys to play with. This way, you’re even more protected.

Types of Investments

Stocks: Think of stocks as owning a tiny piece of a company. When you buy stocks, you become a part-owner.If the company does well and its stock price goes up, you win! You also get a share of the company’s profits through something called dividends.But be careful, not all stocks are equally risky. Some are riskier than others, so choose wisely when you invest. It’s like picking the right game to play; some are more challenging than others.

Bonds: are like IOUs from a company or government. When you get a bond, the one giving it promises to pay you back later with a little extra, called interest. Bonds are usually safer than stocks, but they might not make you super rich. Also, not all bonds are the same; some are riskier than others, and experts grade them with letters to show how safe they are. So, bonds are like lending your money and getting it back with a bonus, and they come in different safety levels.

Principle 5: Continual Learning

On the path to building wealth as a youngster, learning is like your friendly guide. It’s like a compass that shows you the way through the changing money world. Just keep reading, taking courses, and staying up-to-date. This way, you’ll make smart choices, grab new chances, and lock in your financial future.

Learning: A Lifelong Journey: In the world of wealth building, continual learning is like fuel for your journey. It’s not just for school; it’s a lifelong adventure. Learning about money, investments, and financial strategies keeps you on the right path.

Adapting to a Changing World: The world of finance changes, just like the seasons. New opportunities and risks appear. By continually learning, you can adapt to these changes. It’s like knowing when to switch from shorts to a warm coat as the weather changes.

Avoiding Costly Mistakes: Learning helps you make smart choices with your money. It’s like using a map to avoid getting lost. When you understand how things work, you’re less likely to make expensive mistakes.

Building Confidence: As you learn, your confidence grows. Just like becoming better at a video game, you feel more sure of yourself. This confidence helps you make informed decisions about your wealth.

So, remember, learning is a superpower. It keeps you on the right track, helps you adapt to changes, prevents costly errors, and builds your confidence. Keep learning, and you’ll be on your way to financial success!

Principle 6: Handle Your Debts and Boost Your Credit

As you grow your wealth, there may come a time when it makes sense to borrow money for different things. You might use a credit card for rewards, get a mortgage for a house, take out a loan for home improvements, or finance a car with an auto loan. And sometimes, you’ll consider a personal loan for starting a business or supporting someone else’s ventures.

But be careful with debt. Having too much debt can slow down your journey to wealth. To manage debt, keep an eye on your debt-to-income ratio. Make sure that you can comfortably pay back what you owe without stress. Try to pay off high-interest debt, like credit cards, as soon as possible to avoid paying lots of extra money in interest. Be cautious about loans with changing interest rates or big final payments, as changes in the economy or your own situation can make them tough to handle

Maintaining a Good Credit Score

To grow and keep your wealth, having a good credit score is crucial. It’s like a key that opens doors to better loan deals. With a strong credit history and high score, you get lower interest rates and better terms on loans, which can save you lots of money over time.Investment Score

Here are a few key steps that you can take to Achieve Credit Score Improvement

Always Pay Your Bills on Time: Your credit score mainly depends on whether you pay your bills when they’re due. To keep a good score, make sure to pay your bills on time, without delay. Even a few days late can seriously hurt your credit.

Use Less of Your Credit Wisely: Another thing that affects your credit score is how much credit you use compared to what you have. It’s called ‘credit utilization.’ To keep your credit score healthy, try to use less than 30% of the credit you have available.

Avoid Opening Too Many New Accounts: Avoid opening numerous new accounts; it temporarily lowers your score. Focus on existing accounts, open new ones when necessary, proving your financial responsibility for a strong credit score.

Check Your Credit Report Regularly: Keeping an eye on your credit report often is super important for making your credit score better. This helps you know what’s going on with your money past and catch any mistakes that might lower your score. When you check your report regularly, you make sure all the information is correct and can quickly fix any problems. This easy routine helps you take charge of your credit and move towards a higher credit score.

Principle 7: Build Multiple Income Streams

Diversify Your Income: Having multiple income streams is like not putting all your eggs in one basket. Instead, you find different ways to make money. It’s like having more than one tree with fruit to pick from.

Security in Variety: Having different income sources is like having a safety net. If one source goes down, you have others to rely on. It’s less risky.

Examples of Multiple Streams: People can do it in different ways, like a full-time job and a part-time gig, investing, or having a small business. Each source adds to your financial stability.

Start Small: You don’t need to do everything at once. Start with one extra income source, and as you get comfortable, add more. This way, you can grow your wealth and secure your financial future. So, consider diversifying your income to be financially safer and more secure.Role in Investments

Principle 8: Reduce How Much You Pay in Taxes

Taxes can quietly eat into your efforts to build wealth. We all pay income and sales taxes as we make and spend money, but even our investments and things we own can be taxed. So, it’s important to know your tax situations and find ways to lower how much they take from your money.

One easy way to pay less in taxes is to use special accounts. These are accounts like 529 college plans, IRAs, and 401(k)s. They help you save money and pay fewer taxes. For instance, money put into a traditional IRA or 401(k) is tax-free at first, which means you pay less tax that year. Plus, the money grows without getting taxed, and in the end, you pay less tax when you take it out. Roth IRAs and 401(k)s are even better because you don’t pay any tax on the money you take out

To pay less in taxes, consider when and where you invest. Hold onto investments for over a year to enjoy lower taxes. Put income-making assets in tax-friendly accounts like Roth IRAs, avoiding taxes on earnings. Growth stocks that create gains (not income) are better in taxable accounts. Choose the right timing and place for your investments to reduce taxes.

Principle 9: Asset Accumulation

When we talk about making money and getting rich, one important thing is collecting valuable stuff. These things can be like magic money makers – they give you money and become worth even more as time goes on. For young folks, gathering these valuable treasures is like building a strong base for your money future. The more treasures you collect, the safer your money becomes.

It’s a plan for the long run that can lead to having lots of money and feeling safe about it. So, the earlier you start collecting these treasures, the better your money future will look. It’s a bit like finding special treasures that get more valuable over time and bring you financial happiness and success.

Principle 10: Patience and Discipline

Patience and discipline are your buddies in building wealth. Imagine it’s like a long race, not a short sprint. Getting rich doesn’t happen quickly; it needs time. Patience is when you wait for your money to increase, even when it’s not fast.

Discipline means following your money plan, not making quick, unplanned choices, and staying on the right path. Just like a runner who finishes a long race, don’t give up. Keep being patient, stick to your plan, and watch your wealth grow steadily over time. These qualities are the strong pillars for success in your journey to wealth

Principle 11: Protect Your Assets

You’ve put in a lot of effort to earn and build your wealth. The last thing you want is to lose it all because of an unexpected event. For instance, a fire could destroy your home, a car accident might lead to expenses, or if someone passes away early, you could lose the money they would have earned in the future. So, it’s important to be prepared for these unexpected events to keep your money safe.

Insurance is like a shield that protects your wealth from unexpected problems. For example, home insurance helps if your house and things are damaged in a fire. Auto insurance comes to the rescue when you have a car accident, and life insurance provides money to your loved ones if something happens to you.

Another helpful insurance is long-term disability coverage. It steps in when you can’t work because of an injury or illness. It keeps the money flowing even when you can’t work.

Now, here’s a big tip: even if you’re young and healthy, it’s smart to think about insurance. Why? Because it’s cheaper when you’re younger. So, getting life insurance at 25, when you’re single, can be a lot cheaper than waiting until you’re 35 with a family and a mortgage. So, think ahead and protect your wealth with the right insurance.

Principle 12: Giving Back

Helping others and giving to those in need is a crucial part of growing wealth, especially for young people. When we have more, we get the chance to do more for others. It’s like a cycle of kindness. When we share some of what we have, we don’t just make the world better, but we also discover a sense of purpose and satisfaction.

It’s not just about money; it’s about creating a positive impact in our communities and beyond. So, as you work on building your wealth, keep in mind that giving back is a valuable principle that can bring joy and a deeper sense of purpose to your journey

Frequently Asked Questions

Q1: How much should I save each month to build wealth as a youngster?

To build wealth as a youngster, it’s ideal to save at least 20% of your monthly income. However, the exact amount can vary based on your financial goals, current expenses, and income. Starting with a consistent saving habit, even with a smaller percentage, can set you on the right path to financial success.

Q2: Are there any apps or tools that can help with budgeting and wealth building?

Certainly, many user-friendly apps and tools are available to assist in budgeting and wealth building. Applications like Mint, YNAB, and Personal Capital offer easy ways to track your spending, set savings goals, and manage investments. They’re a valuable resource for anyone looking to achieve financial success.

Q3: What are some low-risk investment options for young people?

For young investors, low-risk options include savings accounts, certificates of deposit (CDs), and government bonds. These choices offer security and minimal risk, though returns may be lower. Diversifying with index funds or ETFs is another safe approach, spreading risk across various assets while maintaining long-term growth potential.

Q4: Is it necessary to hire a financial advisor to build wealth?

Hiring a financial advisor isn’t a must, but it can be helpful. They provide expert guidance and tailor plans to fit your goals. You can learn to manage your finances, but advisors offer valuable insights. It’s your choice, and both paths can lead to wealth-building success.

Q5: Can I start building wealth with a small income?

Yes, it’s possible to start building wealth with a small income. The key is to budget wisely, save regularly, and make informed financial choices. Even small contributions can grow over time with the power of compounding. It’s about consistency and smart financial planning, regardless of your income level.

Conclusion

In the world of money, especially for young folks, the top 12 principles for building wealth are like precious treasures. They guide you on the path to financial success.

Now that you know these principles, you have a roadmap. You can set your goals, make budgets, invest wisely, and keep learning. And remember, starting early is the secret ingredient. It’s like planting a tree; the sooner you start, the stronger and taller your wealth becomes.

Avoid traps like debt and get professional advice when needed. Build multiple income streams, save consistently, and focus on accumulating assets. Be patient and disciplined, and always remember to give back.

With these principles in your pocket, you’re ready for your wealth-building journey. It’s a marathon, not a sprint, but the finish line holds a prosperous future. So, go ahead, start now, and watch your wealth grow!