Most parents want their children to be better off than they are. It's therefore encouraging to see that 57% of millennials believe they'll be wealthier than their parents in their lifetimes, according to data from LendEDU. But becoming wealthy isn't a matter of luck -- it's a matter of precise planning and smart decisions. Here's how to build wealth in your lifetime.
1. Live below your means
The more money you earn, the more you're likely to spend. That's just how many of us are wired. But if you get on board with the idea of living below your means from an early age, you'll be more likely to meet whatever financial goals you set for yourself.
Therefore, if you're able to qualify for a $300,000 mortgage, take out a $150,000 mortgage instead. If you can swing a $400 monthly car payment, get a vehicle that costs you $200. Learning to be content with less is a good way to grow your wealth and make yourself happier in the process.
2. Save consistently
It's easy to let savings fall by the wayside when other temptations creep up. But if you want to accumulate wealth, you must make saving money your priority, and that means doing it every single month.
A good way to ensure that you stay on track is to automate your savings as much as you can. If your employer offers a 401(k), sign up to have a portion of each paycheck deducted off the bat. At the same time, set up an automatic transfer to your savings account so that money lands there regularly. And if you're OK on near-term savings, find an investment brokerage account that supports automatic transfers instead.
How much of your income should you be saving? Well, it depends on your goals. For retirement purposes, most financial experts will tell you to sock away 15% to 20% of your earnings at a minimum. For emergency savings purposes, you need three to six months' worth of living expenses in the bank.
From there, however, it's a matter of what you want. Some people go so far as to save 50% of their income, so think about your goals and what it'll take to achieve them.
3. Invest wisely
Though the money in your emergency fund should be kept in a standard savings account, leaving your retirement or other long-term savings in cash will only hinder you on your wealth-building quest. Investing that money, on the other hand, will enable you to grow it into an even larger sum, and the more time you give yourself to invest, the more you stand to gain.
Where should you invest your money? It depends on your tolerance for risk, but as a millennial, you should feel fairly comfortable investing a good 80% of your non-emergency fund assets in stocks. This doesn't mean you need to buy individual stocks -- though that's not a bad idea, if you feel comfortable doing so.
You can load up on index funds that track the market and give you instant diversification in your portfolio. Actively managed mutual funds are a solid option, too, though they typically charge much higher investment fees than index funds, which are passively managed.
How much wealth might stock investing help you accrue? Imagine you consistently invest $500 a month in stocks over a 35-year period. If your portfolio generates an average annual 7% return, which is actually a couple of percentage points below the market's average, you'll wind up with $829,000. Make it $700 a month, and you're looking at over $1.1 million. And if you push for $1,000 a month, you'll get close to $1.7 million.
The right choices early in life can set the stage for financial success. As a millennial, you really have time on your side, so use it to your advantage by adopting smart habits starting now.