Once you have learned how to achieve the proper mindset for building wealth and financial success, the next step in successful wealth-building is to actually start building your wealth. That’s easy to say, and hopefully after you’ve read this post, it’ll be almost as easy to do.

Building wealth requires that you do some things that are relatively unexciting. If you think about it, spending money is fun. Saving money, on the other hand, can be as boring as watching paint dry. This makes it hard for people to stop doing what they aren’t supposed to do and start doing what they are.

In this post, we’ll tell you about some of the basic things you need to do in order to build your wealth and explain how these things work so that you not only have an idea of what you need to do, but why you need to do it.

Spend Less Than You Earn

You’ve probably heard the phrase “spend less than you earn” so many times that it makes you sick, but the truth of the matter is that many people still don’t put this into practice. If you make $2,500 a month, you can’t spend $3,000 and expect to be wealthy someday. The math just doesn’t work.

How do you make sure that you’re on track and not spending more than you’re making? Simple. You have to keep track of your spending and get on a budget. Your budget is the financial tool you should use to tell yourself how much you are going to spend each month and what you are going to spend it on.

As we mentioned in our financial tools lesson, when creating a budget you should make sure the numbers you come up with are realistic. Being on a budget also requires that you have the discipline to stick to what you said you’re going to spend. If the numbers aren’t realistic or you don’t have the discipline, it won’t matter how much effort you put into creating your budget. It simply won’t work.

Creating a budget and sticking to it are not the most enjoyable things in the world, but doing this is the first and most important thing you need to do to ensure that you’re on your way to building wealth.

Build Your Net Worth

Once you’ve figured out how you’re going to consistently spend less than you make, you can start building your net worth.

Your net worth is the total value of everything you own minus the total value of all your debts. In other words, it’s how much money you’d have left over if you sold everything you own and paid off all your debts.

Building your net worth is pretty straight forward, as there are only three ways you can do it.

1) Save the money you don’t spend

2) Pay down your debts

3) Acquire assets that increase in value

The first of these you should already have under control if you are budgeting your expenses and sticking to that budget. The money you have left over at the end of every month will increase your net worth as long as you don’t spend it.

Get Out of Debt… And Stay Out

The second way to build your wealth is to pay down any debts you have. As you pay down your balances, your debts will shrink. This will make the difference between the value of your assets and the value of your debts greater, which means your net worth will grow.

In addition to increasing your net worth, another thing we like about paying down your debt is that it can also help with spending less than you earn.

If the minimum payments on your debt are dependent on the balances, then they should decrease as you pay those balances down. This will leave you with more money left over at the end of every month, which you should use to accelerate paying down your debt.

If you create a free account with us, part of the benefits of running a Finavigation Report for yourself includes a feature that shows you how to pay off all your debts in the most financially efficient way.

This takes into consideration how much you owe, the interest rate on each of your debts, and how much paying more than the minimum payment on each debt will chip away at the balance to arrive at the fastest way for you to get completely out of debt.

Acquire Appreciating Assets

The third way to build your net worth is by acquiring assets that increase in value, waiting for their value to increase, and eventually selling them and keeping the profit. This is called investing.

The idea behind investing is that the assets you bought will increase in value, and that will make the difference between what you have and what you owe greater - thus growing your net worth.

The tricky part of investing is finding assets that are actually going to go up in value that people don’t know about yet. Until recently, it was a given that the value of real estate always increased. As we saw with the recent credit crisis, that is no longer always the case. Likewise, the values of stocks and other securities tend to fluctuate, and so it’s difficult to determine what is a good asset to buy and what isn’t.

If you have debt, we recommend paying down your debts before looking for assets to invest in. As a way to grow your net worth, paying down your debts is safer than investing due to the fact that what you originally thought was a good investment may end up losing you money in the end.

Keep Learning About Personal Finance

In addition to doing the things we’ve mentioned in this post, building wealth also requires that you make good financial decisions. The best way to ensure that you do this is by continuing to educate yourself about personal finance.

Here at Finavigation, we take pride in being an independent source of information for people looking to learn how to get ahead financially. We encourage you to take advantage of all the free resources available on the site and keep coming back as we cover more financial topics, enhance the financial guidance in our Finavigation Report feature, and search to find you the best deals available on financial products and services.

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