In recent years, the topic of wealth has become more common. On social media, trends like quiet luxury and wealth continue to circulate, and news reports highlight a looming “great wealth transfer.” Unfortunately, the idea of wealth can still feel abstract or unattainable. That’s why we’re breaking down what it really means to build wealth.
What is wealth?
First, we need to discuss what wealth actually means. Research shows that for many people, wealth includes more than financial success and assets—it also involves physical and mental well-being, with happiness valued nearly as highly as money.
These areas are often interconnected and related to finances. So, in many ways, wealth isn’t about how much money you have, but how your money works for you and helps you reach your personal or financial goals.
So, how can we more concretely define wealth? In this post, we’re focusing on financial wealth, which includes all the resources you control, such as money in the bank, retirement and investment accounts, properties, and intangible assets like patents. Simply put, financial wealth is defined as your total assets minus your debts, or your net worth.
Rich versus wealthy
Before exploring how to build wealth, it’s important to understand that wealth isn’t the same as your income. Your income is a stream of money, like dividends, wages, or salary, that are received periodically and can vary per source. Wealth takes time to accumulate and includes your income, your house, and more.
How you use your income can impact your wealthiness—both financial and overall wealth. People who contribute to their retirement accounts, have emergency funds, and budget responsibly would be considered wealthier than someone with a higher income but more debt, and less savings.
How to build wealth
1. Set your goals
As we mentioned, wealth is more than just money. Start by setting personal and financial goals. Some people prioritize travel, while others want to focus on saving for future higher education expenses or buy a house where they can retire. Whatever your goals are, list and then prioritize them. Listing them may help you see a larger theme or cause you to revisit your reasoning for some goals. Once your list is ready, flesh out your goals with details and measurable outcomes that you can track over time.
2. Create a budget
With your goals established, create a plan and a budget to achieve them. One popular method is the 50/30/20 rule, which divides your after-tax income into three categories: needs, wants, and savings. 50% of your budget goes towards needs, 30% will go towards wants, and the remaining 20% goes towards savings like an emergency fund or a down payment on a house. If you’re actively in the market for a house, your down payment may fall under the need category for you, so remember these are just suggestions—not hard rules.
3. Start saving
A key part of building financial wealth is saving money. Because people have diverse goals, different savings strategies work for different needs. And it’s not unusual to have several types of savings accounts for specific purposes. Accounts like high-yield savings, CDs, and money markets are best for achieving short-term financial goals, like vacations or saving for a down payment. On the other hand, an IRA is tailored specifically for long-term retirement planning. And then on top of everything, you should also maintain a dedicated emergency fund.
4. Explore investments
Retirement accounts support long-term goals because they’re investment accounts, often holding a mix of assets like stocks or mutual funds. There are multiple types of IRA accounts, each with its own features and benefits. But all are long-term, tax-advantaged savings accounts available to individuals with earned income. Withdrawals before age 59½ incur a steep penalty, so this is a great way to build your financial wealth, plan for the future, and provide peace of mind.
Beyond retirement, additional investing can help your money grow and potentially create new income streams. Options include real estate, stocks, bonds, mutual funds, art, and other collectibles. Research your choices or consult with a trusted financial advisor to discuss different options.
5. Build credit and manage debt
Debt also affects your wealth. Debt isn’t inherently bad, and some debt is beneficial. Establishing consistent, on-time credit card payments can help you build credit, and loans like mortgages can also be considered “good debt” when they help you build equity. Debt becomes harmful when it becomes unmanageable, and you’re constantly maxing out your credit limits. This negatively impacts your credit scores, which limits access to essentials like housing, transportation, and even education. If you’re struggling, look into debt management strategies like consolidation. Overall, to build wealth, aim minimize bad debt and grow your assets (and credit score).
6. Protect yourself
Once you begin building your wealth, it’s time to protect your assets. You may not have considered it, but insurance plays a major role in proper wealth management. Just like your emergency fund is needed for life’s surprises, insurance can add another layer of protection.
When shopping for insurance, create a list of what you want and need covered, so you can look for products that match your goals and budget. Your credit can also influence the price of your policies. Common types of insurance include property, auto, health, and life insurance.
7. Keep going
Life happens, and setbacks are normal, even if you’re doing everything right. You may have a pipe burst, and between your insurance and your emergency savings, you’ve got it covered. But now your emergency savings account is totally drained, and starting again feels daunting. Or worse—you made a costly financial mistake, and now you feel like getting back on track is impossible. Regardless of your situation, the most important thing is to give yourself grace and keep moving forward. Remember: progress over perfection.
Key takeaways:
- Financial wealth is defined as your total assets minus your debts.
- To build financial wealth, increase assets through budgeting, saving, and investing, and decrease liabilities through proper debt management.
- Overall wealth is more than money—it’s time, mental and physical well-being, and living a full and meaningful life.
Wealth can feel abstract, but we hope this makes the idea of building wealth less daunting. While your financial wealth is dependent on growing money, your overall wealth is about making smart financial decisions that allow you to live the life you desire, whatever that looks like. But this takes time, so start as early as possible and give yourself some grace during the curveballs. What does wealth mean to you? Share in the comments below!
