What Makes You Wealthy?
“Poor people see a dollar as a dollar to trade for something they want right now. Rich people see every dollar as a ‘seed’ that can be planted to earn a hundred more dollars … then replanted to earn a thousand more dollars.
–T. Harv Eker, Secrets of the Millionaire Mind
Wealth is what you accumulate—not what you make. If you were to stop working tomorrow, how long could you support your current lifestyle? That is what makes you wealthy.
So how wealthy are you? If that question makes you squirm, there is good news. Regardless of how much you earn, your wealth can grow if you start thinking about and treating money differently:
Pay yourself first.
Begin with an emergency fund. Aim for at least $500 and work up to 3-6 month’s salary.
Tackle your debt.
If net worth is what makes you wealthy, debt is wealth's enemy. Start eliminating it with this debt payment calculator.
right savings tools to maximize interest earned and minimize withdrawal penalties.
Max out matching contributions.
If your employer matches contributions to a 401(k) or other retirement benefit, don’t say no to free money. Planting money for growth today will be what makes you wealthy tomorrow.
Make a plan for windfalls.
Think twice before spending inheritances, tax refunds, bonuses and other unexpected income.
Don’t lose out to inflation.
Your savings is a huge part of what makes you wealthy, so you don't want to see it diminished by inflation. The historical long-term average for inflation is about 3 percent. That means if you put $1,000 under your mattress today, in 20 years it will buy only $554 worth of stuff (at today’s prices).
Know your assets and liabilities.
What do you own that can be turned into cash (i.e., stock, home, property or business)? What do you owe to another person or entity (i.e., loans or rent)?
Match your risk tolerance.
Risk is the uncertainty of achieving a desired result. Many factors affect your willingness to take risks in life and in your finances.
to assess your comfort level with risk taking.
Start with The Financial Planning Association or the National Foundation for Credit Counseling.
Create a long-term wealth building strategy.
Any good strategy starts with identifying your short-term and long-term goals. Short-term goals might include things you want to accomplish in one to three years; long-term goals might include retirement savings that you won’t tap into for 20 or 30 years.
How wealthy are you?
Remember that how much you earn doesn’t determine your wealth. What makes you wealthy is your ability to sustain yourself should you lose that income. Build your strategy today so you can swap immediate gratification for the rewards of long-term security.
[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]