A new year brings new opportunities to set financial goals. If you’re ready to set New Year’s financial goals that will help you improve your money management skills and build wealth in the next 12 months and beyond, it’s a good idea to start planning ahead so you can hit the ground running and have a higher chance of hitting your goals.
Building wealth is a gradual process, but it becomes exponential over time as your initial investments generate returns that can be reinvested for greater earnings. The key is allocating as much extra money as possible to wealth-building investments.
Here are five strategies to jump-start your efforts.
1. Cut down on living costs
If you’re serious about building wealth, the easiest way to find money to fund wealth-building activities is by cutting down on your current living expenses.
Can you trade in your car for a cheaper model and use the leftover money to fund an IRA? Can you move into a cheaper home and use the difference to make monthly contributions to investment vehicles?
2. Make automatic investment contributions
If you’re determined to start building wealth in 2020, automatic contributions can help force you to stick to a plan—especially if you struggle to make voluntary contributions on your own.
These can be scheduled according to your investment preferences, whether you want a monthly contribution or a contribution from each paycheck. You can also use this strategy to guarantee a minimum amount of investment into wealth-building strategies every month, with hopes of making additional contributions as your income allows.
3. Consider a side gig
If your current income and expenses make it difficult to meaningfully contribute to wealth-building activities, you could consider taking advantage of the gig economy and starting a side gig that can bring in income that will help you grow your wealth.
A side gig can be more flexible than a traditional second job because you’re able to choose your hours and build your income around your current lifestyle. You can work as much or as little as you need to, allowing you to control how much additional income is being created to fund your wealth-building efforts.
These side gigs can include ride-sharing services, shopping for groceries, walking dogs, or any number of other activities that can accommodate both your financial needs and your availability.
4. Max out your 401(k) matching
401(k)s and other employee-sponsored retirement accounts are great wealth-building resources on their own, but many of these accounts also offer employer matching contributions that essentially serve as free money if you contribute enough to earn the full match.
Depending on the terms of your matching agreement, you could earn thousands of extra dollars that go directly into an investment account. The taxes on that income are deferred, and the money can start earning interest immediately.
Over time, this matching could represent a significant portion of your savings. Just make sure you understand your employer’s vesting rules, which require employment for a certain length of time before you can take your matched funds with you to another job.
5. Take advantage of every tax deduction
Lowering your tax obligations can increase your tax refund every year, which can be used as a one-time stimulus to your wealth-building efforts. Pay attention to opportunities to write off donations or certain living expenses—especially if you’re self-employed.
If you’re not familiar with tax rules, talk to an accountant who can look at your financial situation and make sure you’re taking advantage of every tax-saving opportunity. Just make sure that when you do get that check from Uncle Sam, you use it to build wealth, rather than fund your next vacation.
Building wealth is a long-term financial process, but small contributions to this effort can yield big returns later in life. As you set New Year’s financial goals, focus on actionable steps you can take to start building wealth right away.