00:00 Everyone Can Build Wealth 01:11 What Is Wealth? 02:28 Building An Emergency Fund 04:22 Developing A Basic Investing Strategy 06:54 Employer Sponsored Retirement Accounts 09:21 Individual Retirement Accounts 12:53 Brokerage Accounts
Many people think that having and build wealth is only achievable to people of high income; however, regardless of your income level, if you can develop basic knowledge in financial planning, investing, and the stock market, then you can build wealth in your life. In this, in this video I discuss wealth and various forms to build it in your life.
1. What Is Wealth?
Our view of wealth is often distorted because we believe that a wealthy person is someone who is a big spender and has a bunch of nice material possessions; however, this is false. Real wealth is having financial knowledge, assets that make you money, limiting your liabilities, avoiding debt, and having a long term mindset. Wealth is about creating a financial plan where money doesn't hold you back. In order to build wealth in our own lives, we must see wealth for what it is and focus on building real wealth.
2. Building An Emergency Fund
I personally believe that before you start investing in the stock market, outside of 401k plans, it is extremely important to build your emergency fund. An emergency fund is a financial safety net to protect you against life's emergencies. Ideally, this should be 6-12 months of living expenses. And the reason I believe it's important to build your emergency fund first is because you never want to be pressured to take your investments out at a loss. Before focusing on really growing your money, it is important to make sure your emergency fund will protect you against life's surprises.
3. Developing A Basic Investing Strategy
When it comes to the stock market and investing, I believe in following the Warren Buffet approach, which is invest in index funds and dollar cost average. Index investing is a passive form of investing that has historically had an average return of 10 (though not guaranteed). Dollar cost averaging is an investment strategy where you spread out your investments over time. In the long term, over the course of many years, this basic investment strategy should help you build your wealth. It is not a "get rich quick" strategy, but has shown to produce long term results.
4. Employer Sponsored Retirement Accounts
Once you develop your basic investment strategy, you can now invest in the stock market. The first account you should consider getting to help you build your wealth over time are 401k accounts. These are a pre tax investment accounts where your employer takes out a percentage of your pay before it is taxed and puts it in an investment account where you can invest in index funds and grow your money in the long term. In addition, employers often have matches with 401ks that will help you grow your money quicker. And although you don't pay taxes when you contribute money to these accounts, once you are eligible to withdraw, you will have to pay taxes. It is also important to know that if you withdraw money before you are eligible, you will have to pay early withdrawal penalty.
5. Individual Retirement Accounts
Another retirement account that can help you build your wealth over time are individual retirement accounts commonly known as the Roth IRA and the Traditional IRA. In this video, I focus on the Roth IRA. The Roth IRA is a retirement account you can open through broker like Schwab, Vanguard, or Fidelity. In this account you can contribute money that can grow over time and when you reach the eligible age to withdraw, the interest you gained isn't subject to tax. These accounts are extremely good to have because they have high tax advantages. These accounts are also subject to high early withdrawal penalty if you withdraw before you are eligible.
6. Brokerage Accounts
The final account that can help you build your wealth over time are basic brokerage accounts. Brokerage accounts are investing accounts where you can invest in stocks, bonds, mutual funds, ETFs, and CDs. In this video, I do not go in detail on these various investment; however, the stock market is a great tool to invest and grow your money over time.
**This video is intended for entertainment purposes only, none of it should be interpreted as financial advice. Links above are affiliate links where if you click and order, I will receive a commission at no cost to you. **
