ALBAWABA - There are several ways through which you can build wealth, ranging from establishing a successful startup to inheriting a substantial estate.
However, for the average citizen, achieving wealth typically requires a long-term strategy. This may involve various elements, such as budgeting, investing, and managing your finances effectively.
According to a recent study conducted by the financial services company Empower, 67% of millennials and Gen Z believe that salary is the most important factor in wealth building. Younger generations prioritize salary over other wealth-building factors like debt relief, job stability, and living below one's means.
While having a high salary can play a significant role in growing your wealth, it won't make you rich on its own. There are other helpful factors that should be considered, as indicated by the study.
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Your salary alone only reflects a fraction of your overall wealth. A high salary might indicate better financial standing, but if you don't use these funds efficiently, it may not contribute significantly to your net wealth.
Scott Johnson, a certified financial analyst and Chief Investment Officer at Adell, Harriman and Carpenter, states that the true key to building wealth is how much of your income you retain.
You can keep a portion of this amount in a savings account; you should always maintain cash reserves for emergencies. However, investing in assets like stocks, bonds, or real estate can help your money grow over the long term.
If the money you save is just "under your mattress," i.e., idle, your purchasing power may diminish over time due to inflation. However, investing in low-cost index funds is a time-tested method and a strategy endorsed by many self-made millionaires for building wealth from almost any income.
Index funds offer a practical investment approach, often being low-cost and providing exposure to a diversified range of stocks, leading to automatic diversification. This way, your investment portfolio isn't tied to the success of a few specific companies, allowing it to better withstand market fluctuations.
Even if you're not able to save a lot, it's good to get into the habit of investing what you can. Unlike money in your checking account, investments benefit from the power of compound interest, which occurs when interest accumulates on your returns in addition to your initial investment, thus accelerating the growth of your funds.
Johnson says, "Wealth-building comes from finding a balance between living reasonably and saving enough to achieve future growth. The longer these savings have to grow for you, the better your chances of achieving your goal."
