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One of the most common purposes of investing is to build wealth for future financial goals such as a new car, a college education for children, and financial security in later life. Many people even have a specific dollar amount in mind such as having $1 million saved by the time that they stop working.

Below are 10 recommendations for how to build wealth over time:

1. Pay Yourself First

Make investing for retirement a high priority in your household budget. Consider saving for retirement and other financial goals as a “fixed expense” like a car payment, rent, or a utility bill. Try to make investment account deposits automatic via a payroll deduction or enrollment in an automated investment plan.

2. Pay Off Credit Card Debt

Interest on credit card debt is a big drag on wealth-building efforts.

When you make only minimum payments on a credit card balance, goods and services can end up costing almost twice as much as their original cost.

To avoid this situation, strive to pay credit card bills in full and spend accordingly.

3. Seek Growth Opportunities

Savings often start out in low-risk, low-return assets, such as savings accounts, money market funds, and certificates of deposit (CDs). However, “ownership” assets such as stocks, and stock mutual funds offer the largest potential to build wealth and maximize the growth of savings over time.

4. Save Small Regular Amounts

Small amounts of savings over long periods of time can really add up. For example, starting at age 25, a bi-weekly deposit of $100 earning a 6 percent average annual return will grow to $431,490 by age 65 according to Advantage Publications.

Weekly $100 deposits over 40 years will grow to $862,979.

Time and compound interest are a long-term investor’s greatest allies.

5. Start Saving Immediately

Compound interest is not retroactive. In other words, you cannot earn money on money that was not previously saved. To “find” money to put into long-term growth investments, cut out or scale back (e.g., buy two lottery tickets instead of five) spending on small, but unnecessary expenses.

6. Complete a Savings Challenge

Savings challenges have been developed for every budget and time frame. Examples include saving $100 in 30 days and $2,500 in 50 weeks. Challenges provide structure by suggesting regular savings deposits to help you build wealth. Once the savings goal is reached, the money can be invested for long-term goals.

7. Kick It Up a Notch

When earnings from a job increase with promotions or household expenses end (e.g. child care and car loan payments), adjust your savings upward without having to cut back on household spending. Some employers also allow workers to “auto escalate” savings and save more when they earn more.

8. Diversify Your Portfolio

Diversification will reduce — but not eliminate — investment risk. Select different asset classes (e.g., cash equivalent assets such as CDs, stocks, bonds, real estate) and different investments within each asset class (e.g., U.S. stocks, foreign stocks, and stocks from companies in different industry sectors). Another option is investments that are already diversified, such as mutual funds and exchange-traded funds (ETFs). This can aid in your efforts to build wealth over time. 

9. Take Prudent Investment Risks

Prudent risks (say, high-quality blue-chip stocks) have real potential to increase your investment returns. The biggest risk in long-term investing is avoiding stocks completely.

People who put all of their money in cash assets often lose purchasing power after taxes and inflation. For a “low-maintenance” approach, “buy the market” with index funds or exchange-traded funds.

10. Take Advantage of Available Tax Breaks

Practice tax avoidance by using available tax code provisions to pay no more income tax than you’re required to legally. Some specific ways to do this include holding investments for more than a year to pay long-term capital gains tax rates and making deposits to tax-deferred employer retirement savings plans and tax-free Roth IRAs.

About the author
Barbara Oneill

Barbara Oneill

As the owner/CEO of Money Talk: Financial Planning Seminars and Publications, Dr. Barbara O’Neill, CFP®, AFC®, CRPC®, writes, speaks, and reviews content about personal finance. A Distinguished Professor Emeritus at Rutgers University, after 41 years of service as a Rutgers Cooperative Extension educator and personal finance specialist, Dr. O’Neill has written over 160 articles for academic publications and received more than 35 national awards and over $1.2 million in grants to support her financial education programs and research. Dr. O’Neill is a past president of the Association for Financial Counseling and Planning Education (AFCPE), a recipient of the AFCPE Distinguished Fellow Award, and a Next Gen Personal Finance fellow. She tweets personal finance information using the handle @moneytalk1 and writes weekly posts for her Money Talk blog.