Building wealth can be as simple as how much you invest, how long you invest it, and the rate of return on your investment. The S&P 500 averages about 10% annual returns historically, so wait long enough, and you'll probably do quite well.
What you can control is how much you invest. Putting more money to work can speed up your journey to financial freedom. Here are three ways to bump up those contributions; your future self will thank you.
1. Look for unnecessary budget expenses
Many people "leak" money from their households and don't realize it; roughly one in five people don't keep a budget, making it hard to know what you're spending your money on.
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A survey of 2,500 consumers by West Monroe showed that the average person pays about $273 per month in subscriptions or $3,276 per year. Suppose you don't need that magazine subscription or the most expensive phone plan. Cutting just $25 per month and investing it instead would grow to $37,242 over 25 years if you received a 10% return on your money.
Now, what if you cut modestly across your lifestyle? Do you need the most expensive trim package on your car? Do you need to eat out four nights per week? Sure, you need to sacrifice, and it might be difficult to build wealth on budget cuts alone. But it's a significant first step if you're not sure where to begin.
2. Generate passive income
Your career is a barter system between your employer and yourself. It's a trade where you give your job your time and energy, and they give you a paycheck in return. Nobody has infinite energy, and everyone gets the same 86,400 seconds each day.
That's where passive income can help you grow your income beyond what you're capable of through your daily activity. Passive income means that you're earning money without effort. For example, you buy a rental property or dividend stocks. The rent or dividends you receive are passive; you receive them because you own the asset, not because you physically did something.
Many retirees want passive income to pay for their living expenses, but you can use passive income to build wealth by reinvesting it. That rental property can eventually buy another one, and you can reinvest dividends to buy more shares -- which pay dividends of their own! Ultimately, you could have as much (or more) passive income coming in as what your job pays you.
3. Begin your enterprise
Last but not least, too many people underestimate the power of a side hustle. You don't have to necessarily do anything overly ambitious to make a massive difference in your finances.
A side hustle can take many forms; you can sell something or do something you are good at for pay. Even delivering pizzas on weekends can work. However, the trick is to keep it separate from your household budget; lifestyle inflation, or "Keeping Up With The Joneses," is a silent wealth killer.
Earning $500 per month (or $115 per week) with a side hustle and investing that can yield tremendous results. You'll have a million dollars if you do this for 28 years and earn 10% on your investments.
That doesn't sound like much because the bar is so low in this example. I suspect you might surprise yourself with how much you can make. Earn and invest $1,000 per month, and you'll reach millionaire status in 22 years. Like I said at the top of the article, the more you put in, the quicker it adds up.
Here's the bottom line
The best part of this is that you don't have to choose just one from the menu. You can become very wealthy by watching your spending habits, accumulating passive income assets, and starting a side hustle to fuel your investments. Knowing the information isn't enough; you need to act on it. So, get out there and dominate your finances.
