If you’re in the middle class, you’re probably feeling pretty good about your financial health, especially when it comes to paying off student loans, saving for retirement and developing healthy investment strategies.
You can pay all the bills and still have something left over for saving and investing — or splurging. Maybe you are building an emergency fund, own a home or are thinking about buying one soon. The bottom line though is that being comfortable now doesn’t mean that you’re ready for the future.
Retirement, college tuition, inflated cost of living and who knows what else are on the horizon, and you’ll need to have a plan to afford it all. While you may not have access to all the strategies that the rich use to safeguard and grow their generational wealth, there’s still a wide range of possible steps you can use to build up your net worth — even over a shorter time frame.
Traditionally savings accounts have not always been considered a good or quick way to build wealth. That’s usually because interest rates are so low — but that’s not always the case anymore, and many financial institutions are now offering attractive interest rates to entice customers to bank with them.
Rates may go down in the future, but if so, that will very likely happen slowly, making now a great time to take advantage of higher yields any financial planner would support.
“We haven’t seen interest rates 4% or higher since the early 2000s,” said Walli Miller, a financial coach and the founder of Financially Thriving. “A high-yield savings account is a great way to park your money if you are going to need access to it in the short term.”
She added, “Keeping money in an [HYSA] at an FDIC financial institution provides the most flexibility.”
Debt drags down your wealth in more ways than one. It can be a vicious cycle and thought of as a liability on your personal balance sheet as it decreases your total net worth. The longer you carry debt, the worse it is, because you’ll pay more in interest on the total life of that debt.
It’s hard to pad your retirement accounts when you are too busy paying off high interest rates. To be fair, this might not be a problem if the debt was used to purchase a valuable asset like real estate, but it’s definitely true of unsecured forms of debt, like credit cards.
It may seem obvious, but the money you’re spending on debt payments could be money saved instead. That’s a double whammy, because you’re not just missing out on saving, you’re also missing out on the investment returns that money would be getting.
“Paying down debt, particularly high-interest debt, is a great way to increase your net worth,” said Miller. “Learn to be in the habit of earning interest instead of paying interest.”
Saving is really only one part of building wealth — just as important is getting a return on the money you’ve saved. Accruing interest is one way to do that, but you should also be diversifying your investments across a number of different asset classes.
While investing in the stock market does carry more risk than, say, a high-yield savings account or Roth IRA, historically, the returns of stocks have been significantly higher.
“… in 2023, the stock market [was] up over 20%. While we should not expect returns like this every year, investing in the stock market is a great wealth-builder over time,” Miller said. “Investing in low-cost index funds is a simple way to build wealth.”
Index funds are investment vehicles that simply replicate the broader stock market. They’re a great way to get exposure to a diverse stock portfolio.
One of the easiest ways to build wealth is by saving automatically. Countless studies have shown that those who automate saving tend to save more money than those who do it manually. This is because it takes the decision out of your hands — removing the temptation to save a little less and spend a little more.
David Delisle, a finance author and the founder of The Awesome Stuff, emphasized the importance of automation.
He explained, “Because most of us will spend that money and not even realize where we spent it. And I promise you, if you begin saving first, you will automatically adjust to the new amount of money you have to spend in the same way that you adjusted your spending upwards when you received a raise and can no longer remember where all the money went.”
Most financial institutions allow you to make automatic deposits on a regular basis. If your employer offers a 401(k) plan, you can make deductions from every paycheck. You can even set up automatic increases in the amount you save.
U.S. Bureau of Labor Statistics data shows that those with a college degree make, on average, $30,000 more per year than those with a high school diploma. The median earnings for those with an advanced degree is $13,000 more per year than those with a bachelor’s degree. That difference could add up to a serious wealth boost over five years.
You can also pursue certifications or boot camps to acquire new skills that will increase your earning potential. If going back to school isn’t practical for you, or you don’t want to spend the money, you can still invest in yourself through time and effort.
“Foster relationships in your community by attending conferences, meetings, events and the like,” said Hector Castaneda, a certified public accountant (CPA) in addition to being the CEO and president of Castaneda CPA & Associates.
“You can build long-term and meaningful networks while contemporaneously gathering the needs of your community and filling the void with a business venture or even provide consulting to experts who service your community for a fee.”
James Holbach contributed to the reporting for this article.
