5 Strategies to Jumpstart Wealth Accumulation

Jumpstart Wealth Accumulation

Before we get into the specifics of wealth accumulation, let’s first discuss the elephant in the room – myths about building wealth.

First things first, you DO NOT have to come from money to build wealth. In fact, there are plenty of people who have come from modest backgrounds that have done so. Check out this article from Forbes and see just how many have accomplished even billionaire status.

The second myth is that you need your own business to build wealth. Also, not true. The reality is that owning your own business could potentially help you build wealth faster, but that doesn’t mean that plenty of people haven’t become wealthy without owning a business.

Lastly, and this one is a doozy, you need multiple lifetimes to build wealth. This couldn’t be further from the truth. Again, there are plenty of people who literally grew up in poverty and turned their situations around to become some of the richest people on the planet. 

These myths honestly bug me.

Why?

Because they’re discouraging. They have the potential to make people feel as if they’re too far behind to accumulate wealth and benefit from it within their lifetime.

Now that’s out of the way, let’s get into the fun stuff.

If you’re just getting into the wealth accumulation phase of your financial journey, then these next several strategies are for you. These next sections are suggestions of how to accumulate wealth using different investment strategies. These suggestions are not meant to be financial advice, and you should always talk to your advisor for advice on your specific situation.

Invest in Retirement Accounts Correctly

Invest in Retirement Accounts

I’m sure you’ve heard about investing in retirement accounts at this point, but do you know how and how much to invest in those accounts? This next section is a suggestion of how to incorporate retirement savings into your long-term financial goals. 

First things first, if your company offers it, and if there’s a matching program, investing in your company-sponsored retirement account should be your top priority. Ideally, you’d want to invest enough money to get the full company match.

Once you’ve hit that mark, you could move your focus to contribute to a Roth IRA. You’re allowed to contribute up to $6,000 per year of after-tax dollars. The money then grows tax-free! 

Let me explain why this is so important earlier in your career. When you’re just starting out, you’re likely earning the lowest amounts you will earn in your lifetime, and will therefore be subject to lower tax rates. 

Once you put that money into a Roth IRA, you’ll never again be taxed on it, no matter how high your income level becomes. 

After maxing out your Roth IRA contributions, start contributing more to your 401k, until you reach max contributions of $19,500.

After maxing out these two tax-advantaged retirement accounts, then investing in other financial instruments such as stocks, ETFs, and index funds should become a priority.

Save Regularly and in the Right Places

Save Money in the Right Place

Saving your money in the right place can mean the difference in tens of thousands of dollars you could put toward your wealth accumulation. Don’t get me wrong, the practice of saving money is invaluable, however, if you are not using the right avenues to save that money you could actually be working against your long-term savings goals.

If the APY (Annual Percentage Yield) earned for your savings account doesn’t either meet or beat the average inflation rate, you’re actually losing buying power each year. 

But before you do that, let me hit you with some hardcore facts. As of this writing, the average savings account rate earns less than 1% each year. In fact, check out this list from CNN Money that shows some of the highest-yielding savings accounts. All but one show an APY of less than 1%.

At the same time, the average rate of inflation in the US over the last 10 years was 2.28% according to US Inflation Calculator. Keep those figures in mind as I walk you through the example below.

$10,000 invested in a traditional savings account with an APY of 1% will earn $100 in the first year of saving. However, the cost of inflation – about 2-3% average each year – decreased your buying power from $10,000 to $9,872. 

Now, if you were to have invested that same $10,000 in the stock market – assuming the average rate of return of 8% – your buying power will have increased from $10,000 to $10,572 (net of inflation).

Obviously, these are averages, and there are other assumptions to factor in, however, you get the point. Tying long-term savings up in traditional savings accounts can actually hurt more than help your wealth accumulation.

Keep Expenses low to Start Wealth accumulation

Keep expenses low for wealth accumulation

Many people find themselves in a cycle of spending more simply because they earn more. If your living situation isn’t changing, your family size isn’t changing, and you don’t have any major deficits in your budget, then you really shouldn’t need to increase your expenses simply because you earn more money.

Keeping expenses low enables you to apply additional money toward investments. One way to avoid this is to apply additional money earned from raises, bonuses, side hustles, etc. directly to retirement and investment accounts. 

For example, if you’re contributing 5% to your 401k and you receive a 3% raise at work, add that 3% to your retirement contributions instead of receiving it in your paychecks.

This step of wealth accumulation is often overlooked simply because of human psychology. Earning more money is exciting, I get it. But if you can channel that excitement toward building wealth instead of buying material things that ultimately depreciate in value, you’ll be better off for it.

Consider Multiple Streams of Income  

Multiple Streams of Income for Wealth Accumulation

Before I begin this section, let me make clear what I mean by sources of income. At the beginning of this article, I mentioned that assuming you need to start a business in order to accumulate wealth is a myth. The income sources I’m referring to below don’t actually require you to own or start a business.

For example, you could turn one of your hobbies into an income-producing side hustle. Also, investing in real estate by becoming a landlord doesn’t require you to start a business but could be a very lucrative way to earn extra income. Finally, investing in the stock market can be a way of generating passive income that you could literally earn in your sleep. 

Ideally, earning money through passive income sources, particularly income-producing assets, is one of the best ways to accumulate wealth faster. This is mainly because many of these sources only require you to put in a small amount of time for a huge return on your time and investment. Ultimately, the more income sources you have, the more money you can earn, and the more wealth you can accumulate.

Make Tax Planning a Priority

Prioritize Tax Planning

For most Americans, taxes are one of the largest expenses they will ever have. That’s why strategically planning to legally reduce the amount of taxes you pay is very important to wealth accumulation. 

Particularly, if you’re a small business owner, tax planning is absolutely critical. Making a few key decisions could significantly lower your overall tax liability. For business owners, many of your regular expenses can be written off in part or completely. Some examples of expense business owners can write off:

  • Home Office Expense
  • Vehicle Expenses
  • Business Travel
  • Business Meals
  • Subscriptions
  • Equipment used for business (i.e. Laptop, Printer, iPhone, iPad, camera, etc.)
  • Courses on business-related topics
  • Tax preparation fees

This list is certainly not all-inclusive, so reach out to your tax professional for additional advice on tax-deductible expenses for business owners.

Increase Cash Flow

That said, if you are not a business owner, don’t fret. There are still tons of tax-advantaged decisions and deductions that W2 employees can take advantage of. For example, when a W2 employee owns an investment property for which they are a landlord, they can deduct depreciation on the investment property each year. 

This can be a goldmine for landlords because depreciation is not an expense paid out of pocket. So, you could get a tax write-off for an expense you didn’t even have to pay actual cash for. I told you – goldmine!

When you’re able to pay less in taxes, you ultimately have more money to put toward investing – which is the ultimate wealth-building strategy.

Wrapping Up Strategies to Jumpstart Wealth Accumulation

Accumulating wealth does take some strategic planning and an overall shift in mindset. However, if you are serious about building wealth, you can use the five strategies listed here to help you through the process.

The more you plan during the wealth accumulation phase of your financial journey, the better equipped you will be during the wealth preservation phase. Preserving your wealth is ultimately what will impact your ability to build generational wealth.

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Krystal Norwood-Morales, MBA, CFEI

Krystal is a Certified Financial Education Instructor and founder of Wild About Wealth, LLC. As a financial literacy advocate, she writes posts geared toward helping others improve their financial education and build generational wealth.

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Krystal Norwood-Morales, MBA, CFEI

Personal finance blogger

As a certified financial education instructor and financial literacy advocate, my mission is to teach young adults how to build generational through financial education. So let’s get WILD about WEALTH!

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