What are your financial goals? Asked another way, why are you trying to build wealth? During steps 4, 5, and 6, you will see your wealth increase, and you already started seeing your wealth increase all the way back at step 1. It maybe wasn’t as exciting paying off debt or setting aside money for emergencies than it is watching your 401(K) and IRAs skyrocket or your mortgage decrease; but nevertheless, your net worth has been increasing ever since you decided to change your life and get rid of your debt. Why are you doing all of this? You could be like most Americans and spend all your income as fast as it comes in. If you haven’t figured out why you are building wealth, now is the time to have some goals because you are going to have a pile of money.
After you are done paying off your mortgage, you will continue to invest for retirement, in fact, you should go back and increase the amount you are saving to as much as you can in order to reach your financial goals. During this part of your wealth-building plan, you and your spouse should be thinking about what you want to do with your futures together. You should be thinking about retirement and how much you need to have saved in order to retire. You then need to determine how much you need to save each month in order to reach that goal.
Know Your Why
Once you reach your retirement goal that doesn’t necessarily mean you stop working. It can mean you stop working, but there’s so much more to do when you reach financial independence. You get to live the life that most people only dream of because you put in the hard work and sacrifice to get to this point. When you reach step 7, you have enough money to give even more to your church or other charities than you gave up to this point. If you decide to stop working or maybe do part-time work, you have more time available than you did when you were working through this plan. This is the reason to get to this point financially. This is when you can give when opportunities arise, and you can volunteer your time more than ever. This is not the time when you just go find a beach chair and stare out into the ocean and do nothing. You can do that, and you should do some of that, but if your only reason for building wealth was so you could eat, drink, and be merry, then you wasted all of these years trying to build wealth because you were already doing those things at step 1.
Can you imagine having so much money and so much time that you can give and volunteer your time and talents? This is what step 7 is all about! You can increase your giving further. Your Investments are making more than you need to live on, so you no longer must work because you have to. If you continue to work at this stage because you want to, that is awesome. If you decide working is no longer fulfilling and you would rather volunteer your time to more worthy causes, that is awesome as well. You get to volunteer as much time as you want at your local church or your favorite charities. Talk about being merry!
Inherit or Save
How do you get to this point? Do you need to inherit money to get here? No! In fact, only 10% – 20% of millionaires inherited their money. You get to become wealthy by getting control of your spending by having a budget and saving. You get rid of your debt and then save your fully funded emergency fund. After you have your debt gone and have an emergency fund in place you start building wealth. You don’t get to this position very fast by saving $100 a month. It’ll take you 45 years to save a million dollars saving only $100 a month, and in 45 years, a million dollars will be worth less than half of that because of inflation. Most people don’t get to a million-dollar net worth by buying a new vehicle every 5 years. Most people don’t get to a million dollars by buying the largest house the bank says you can afford. Most people will only get there by owning a house they can afford, buying vehicles with cash they can afford, and saving a lot more than the average person in America saves today. How fast you get to this point will be determined by how much you currently have saved and how much you are saving each month. You can get to a million dollars in 23 years by saving $1,000 each month and getting a 10% rate of return year over year. Save $2,000 a month and get there in 17 years. You need to decide what your goals are and save accordingly.
Once you have enough money saved where you can withdraw 4% out of your investments each year to live on, you have enough to say you’re financially independent. Again, being financially independent does not mean you have to stop working, nor does it mean that you will stop working because doing nothing the last 40 to 60 years of your life is kind of a pointless life. This is when you get to add additional meaning to your life by giving and volunteering.
I told you my goal was to retire early so that my wife and I could have more time to volunteer at our church. I also want to travel. Blogging and helping people reach their financial goals is pretty fun, too! What are your reasons for building wealth?