We all want to build immense wealth.
But it won’t happen overnight.
Instead, according to finance coach, Suze Orman, your key to immense wealth is to start saving and investing as much as you can, as soon as you can.
Key Points About This Article
- The longer you wait to get serious about saving, you begin to lose out on the power of compound interest.
- Your key to immense wealth is to start saving and investing as much as you can, as soon as you can.
- Diversification is also vital for minimizing risk and maximizing returns over the long haul.
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You can start saving as early as possible.
Unfortunately, the longer you wait to get serious about saving, you begin to lose out on the power of compound interest.
As noted by Fortune.com, “Let’s say you had $5,000 in a savings account that earns 5% in annual interest. In year one, you’d earn $250, giving you a new balance of $5,250. In year two, you would earn 5% or $262.50 on the larger balance of $5,250, giving you a new balance of $5,512.50.”
“Thanks to the magic of compound interest, the growth of your savings account balance would accelerate over time as you earn interest on increasingly larger balances. If you left the initial principal of $5,000 in the savings account for 30 years, earning a 5% annual interest rate the whole time and never adding another penny, you’d end up with a balance of $21,609.71.”
Build Wealth with Annuities
Over the last 40 years, Orman netted about $400,000 in annuity interest to date.
Annuities are simple to understand. With them, you’re simply making an agreement to pay a set amount each month for a specific period of time. Then, over time, the annuity gains interest. Or, it might be invested in a stock, which you can gain access to.
Diversify Your Portfolio
Diversification is also vital for minimizing risk and maximizing returns over the long haul. Orman suggests using a mix of stocks, bonds, and other investment tools, such as real estate. She also argues it’s important to review and adjust your diversified portfolio, especially as you get closer to retiring. This is another reason to consult with a financial advisor.
Use Debit Cards Instead of Credit Cards
Unless you can pay off your entire credit card bill every month, avoid using credit cards. Instead, rely on cash or debit cards. “There is no more expensive form of bondage than spending more than you have and paying interest of 15% or more on your credit card,” Orman said, as quoted by GoBankingRates.com.
Get Out of Credit Card Debt
Many of us think it’s easier to just charge everything until they get the bill, plus interest.
According to LendingTree.com, Americans have about $1.166 trillion in debt, which is up from $1.142 trillion in the second quarter.
Also, according to Experian, “the average credit card balance in the United States in 2024 is $6,699, a 5.3% increase from June 2023. The average monthly payment for credit card debt in 2024 is $1,212, which is a 5.9% increase from June 2023.”
It’s better to get rid of credit cards if you can, and just use cash.
Set Up Automatic Deposits
One of the best ways to set aside money for savings is by setting up automatic deposits.
“It can be $10 a month, $200, or $1,000. That’s up to you, and each account can have a different contribution amount,” Orman said, as also quoted by GoBankingRates.com. “All I insist is that you make this automatic. That is a proven way to stay committed to a savings goal. Having money zapped from your checking account into your savings account is free too. The set it and forget it approach is how you will reach your savings goals.”
Have an Emergency Fund
According to Suze Orman, “Every family should have an emergency savings account that can cover at least eight months of living expenses,” she said on Oprah.com.
For many of us, saving eight months of expenses is easier said than done.
If you can’t swing that, start small with an emergency savings goal of at least $1,000. Sure, it’s small but it’s a safety net, and it’s a start. If you can put away about $85 a month, you’ll reach that goal and have some wiggle room. However, be sure to store this in a separate “don’t touch” account, automatically depositing money every time you’re paid. Plus, if you ever receive another source of income, such as a bonus or a gift, put it directly into that “don’t touch” account instead of spending it immediately.