In this article we discuss how to build wealth in your 20s. In addition, we define what net worth is and show you how to build wealth and improve your personal net worth.
Net Worth Definition
Before providing you with tips on how to build wealth in your 20s, it is important to understand personal net worth. First, we should define what net worth means. Your net worth is not your income or what you earn. Instead, net worth is your assets minus liabilities. Said differently, personal net worth is everything you own minus everything you owe.
“Net worth is simply what you own minus what you owe. In other words, the total value of your assets minus your debts equals your net worth. For example, if you own a home worth $200,000 and you owe $100,000 on it, you have $200,000 in equity toward your net worth. To calculate your total net worth, add up all the things you own and subtract all the things that you owe money on.” – Dave Ramsey
In short, if you want to learn how to build wealth in your 20s, you must build your assets (like house, equities and cash) and shrink your debts (like credit cards, mortgage, etc.).
Net Worth Calculator
If you are wondering what your personal net worth is, there are many online calculators that are free to use. Nerd Wallet has a simple calculator that you can use to estimate what your current net worth is. Learning what your net worth is can give you a starting point to learn how to build wealth in your 20s.
Obviously, you can also create your own spreadsheet to determine your net worth. In addition, you can simply write down your assets and liabilities on a piece of paper to help figure out your net worth and how to build wealth in your 20s.
What is a High-Net-Worth Individual?
When people think of high-net-worth individuals, they imagine people like Leonardo DiCaprio (movie star), Elon Musk (inventor and investor) or Donald Trump (real estate tycoon). However, most wealthy people that have a high net worth live a simple, quiet life. The method for how to build wealth in your 20s is not necessarily glamorous or exciting; In fact, becoming a wealthy requires sacrifice and discipline.
As a result, we’ve developed some guidelines that will show you how to build wealth in your 20s. If you are able to follow these guidelines, financial success can be in your future.
Most high-net-worth individuals did not get rich by borrowing money. In fact, most people with a significant net worth avoid debt. They know that when you have debt, money is working against you. As a result, it is important to pay down all your debt prior to taking the next steps. Later, you can make your money work for you, not against.
Create a Consistent Source of Income
Put Aside 10-15% of Your Regular Income for Investment
You don’t have to own your own business or be an entrepreneur to be a millionaire. There are many high-net-worth individuals who are average people who work 9-5 jobs every day, just like you.
One of the keys for how to build wealth in your 20s is having a consistent source of income. Every month, or each paycheck, they divert 10-15% of their earnings to investment(s). An example would be investing in a 401(k), Investment Retirement Account (IRA) or Real Estate. Year after year, your money will build and work for you to create wealth.
Begin Saving Money
Saving Money teaches you the habit of not spending and allows you to take advantage of opportunities
Saving money is a lost art. However, saving money is one of the secrets of how to build wealth in your 20s. Historically, people’s lives depended on saving money. If a natural disaster struck or just bad luck, people could fall back on the money they saved to stay alive. Today, life is easier. Credit is widely available to most people and we frequently borrow money for cars, houses and purchases on credit cards.
But, saving money is critical to becoming a high net worth individual for several reasons. First, learning to save money requires that you not spend all your money. Legendary investor, Warren Buffet, famously said that the most important rule of investing is “to not lose money.” So, don’t spend all your money. Instead, save some money. Saving money is an excellent habit to learn.
Second, saving money will give you the confidence to seize opportunities when they arise. When people live paycheck-to-paycheck, they waste their time struggling with bills, instead of focusing on future wealth creation.
Create a Budget
It’s important to keep track of your money. And a budget helps you achieve that objective. Having a balanced budget means spending less of your paycheck. Preferably, you will have a significant amount of money left over to pay off debt and for investing. In short, everyone should budget, whether you are a large corporation or just one person. In addition, creating a budget is your roadmap for how to build wealth in your 20s.
There are many budget options online, including spreadsheets, mobile apps and even printable budgets. Check out our “Best Budget Apps” article for more information and recommendations.
Live below your means
High net worth individuals do not spend money on unnecessary expenses, such as eating out, new cars and designer clothing
In many cases, frugal living is the cornerstone of success for high-net-worth individuals and how to build wealth in your 20s. This simply means spending less than you make. A simple monthly budget can assist you in determining whether you are meeting your goal.
Unfortunately, living frugally is not popular in the 21st century. Popular culture dictates what “normal” consumer behavior looks like. And it’s considered normal to go out and spend money at restaurants, on vacations and the like. In addition, it’s “normal” to buy a big house and drive a new car.
The reality for high-net-worth individuals is that they don’t ascribe to normal behaviors. People with the millionaire mindset only purchase what is needed. They don’t buy new cars or fancy things. As a result, the extra money saved from this frugal behavior is put to work in investments.
Develop a Financial Plan
Once you’ve developed the millionaire mindset, it’s time to create a financial plan. Write down the details of what you want to achieve. If your goal is to own one million dollars in real estate, then plan accordingly. Include details of how you will acquire money to invest and how it will be allocated. In addition, set a timeframe for when you expect to achieve your goal. Your budget will be an addendum to the plan. Finally, review the financial plan frequently and assess your progress.
Develop Good Habits
Good Habits Include Budget Control, Staying the Course, Investment Knowledge and Discipline
Developing millionaire habits is critical on the path to how to build wealth in your 20s. Once you’ve established your goals and your financial plan, you must implement good habits. Good habits include:
- Budget Control
- Staying the Course
- Investment Knowledge
- Millionaire Habits and Discipline
Budget control means that you operate under a balanced budget. Spending is controlled so that remaining cash flow is routed toward smart investments. Good investments are critical for converting thousands of dollars into millions of dollars.
Staying the course requires that you consistently repeat what you are doing, so long as you are successful. If something doesn’t work, it can be changed. But the power of earning from compounding interest is continuously investing money.
Being a good investor requires that you continuously educate yourself. You want to learn as much as possible about your investments. You will accrue knowledge and wisdom on different investment strategies over time.
Learning what has worked for other high net worth individuals is the easiest and most secure strategy for success with money. High net worth individuals get up early each morning and focus on their goals. Investing money is a priority to them and their focus is on earning and business. Many successful high net worth individuals make time for self-development activities, such as exercise and meditation. And they make these habits part of their daily ritual.
The sooner you can get started on your millionaire journey, the better. Many high-net-worth individuals credit their success not to windfall earnings, but to incremental investing over long periods. Compounding interest is a powerful tool that can work for you on the road to how to build wealth in your 20s.
Build Your Income
Maximize Your Income by Starting a Business or a Side Hustle
Once you’ve mastered budgeting and your debt is settled, you want to maximize the money that you earn. You will find that expenses remain almost the same from year to year, but increasing your income can have significant results. Earning more money means that your contribution to your investments will build your wealth more rapidly.
There are many ways that you can improve your income. For example, start a small business out of your home. Explore what you like to do in your spare time and determine if you can make money doing it. For example, photography can be a hobby or a business.
Other sources of income can be part time jobs, weekend work, side hustles or even buying and selling things.
Final Thoughts on How to Build Wealth in Your 20s
Many High-Net-Worth Individuals Operate a Business, Network and Work with a Financial Team
First, many high-net-worth individuals reach their goal quicker by operating a small business. Owning a small business allows you to control how the company operates and take more profit for the extra labor you put in.
Second, maximize the networking that you do with others. Participate in conferences or just promote contact with like-minded people in your area. The network effect can have positive financial benefits for you. Don’t isolate yourself.
Finally, surround yourself with a financial team. Seek out a respected tax professional, attorney, business coach, etc. Sometimes an ounce of prevention is worth a pound of cure. Staying in good legal standing with state and federal regulations can help you build. In addition, these professionals can save you money in the long term.
These guidelines are the simplest path on how to build wealth in your 20s. Want to learn more about saving and investing?
It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.
In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, to help you make the best choice for you.