How to Build Wealth for a Comfortable Retirement

comfortable retirement

If you want to have a comfortable retirement and financially secure future, you need to think about growing your wealth right now. Think about all the adventures you can go on as well as all the free time you will have if you do not have to worry about finances in the future. Retiring with a comfortable amount in the bank is something a lot of people think about. However, growing wealth and having enough to live comfortably is hard, and there is no easy way to get there. You will need to plan, make some changes as well as follow the steps of those who have already retired comfortably. 

Get Out of Debt

Debt is one of the biggest hindrances when it comes to building wealth, let alone thinking about retiring comfortably. Debt makes it harder to save or invest and it keeps growing the longer you take to pay it off. So, before you start thinking about how to grow wealth, you need to think about how you will get rid of one of the biggest obstacles to doing so.

The first step to getting rid of debt is knowing what amount you owe and who you owe. Make a list of everyone you owe as well as how much you owe them. Next, prioritise your repayments. While the goal is to have all your debts paid off, some debts need to be paid off first. These are debts that have an interest rate attached to them. Credit card debts and loans fall into this category. Ideally, you should pay off the debts that have the highest interest rates first. As you reduce the amount owed, the interest you pay will also reduce so the burden of repaying the debts will keep decreasing over time. Next, you need to make a plan of how to repay your other debts. This includes making plans to set aside some money for things like mortgages and utility debts if you have them. 

It will take a lot of planning and sacrifice to get out of debt in a reasonable period. Talking to a financial planner to help you out is a great option if you have trouble doing this by yourself.

Save as Much as You Can

Once your debts are manageable or have been paid off completely, it is time to start saving. Setting some money aside means you have something to invest in the future. Additionally, saving early means that you get to take advantage of compounded interest. If you do not start saving as soon as is feasible, that could make a difference of thousands or even tens of thousands in savings. 

The question that arises once you understand the importance of saving is, how much do you need to save? A general rule is that you should save around 15% of your income. Some might save a lot more than this, especially if they have lofty goals or want to retire early. As long as you save the minimum amount you have set for yourself plus any other extra money you have, you are on the right track.

Optimise Your Spending

Everyone’s spending is different because we all have different priorities. However, if you want to have enough money to put into a money-making venture or investment, you need to find ways to optimise your spending. This can be through cutting down your spending or finding the best deals on the items you need.

Spending wisely means being conscious of all your purchases, especially big purchases. Many people do not shop around for things like mortgages, cars or health insurance. They purchase whatever is available to them without trying to find out if a better deal is available.

Invest in Stocks

Investing any amount you have in the stock market is one of the best ways to build wealth in the long-term. When investing in stocks, you will need to decide whether you should invest passively or actively. Active investment requires the services of a money manager who will trade stocks for you. These managers try to make you as much money as possible by investing in specific stocks that they know are performing well or that they think will perform well in the future.

Passive investing, on the other hand, is buying stocks that you are sure will keep pace with the market so that your investment offers a good return. The best way to get started investing passively is using online tools that help you put money into the investments you believe in. 

Before you can do so, however, you need to learn how to buy stocks online as well as the best tools that make it easy for you, such as Wealthsimple. Wealthsimple allows you to choose from (as well as buy and sell) thousands of stocks on the platform. Wealthsimple also allows you to search for and track stocks easily so you always know what is going on with your investments.

Insure Yourself and Loved Ones

When you think about using insurance to build wealth, you are likely thinking about life insurance. While life insurance can be a great way to build wealth as well as protect your loved ones when you are no longer here, getting health and disability insurance is just as important.

Health issues can spring from nowhere and if you do not have the right insurance, then you will need to use money from your savings or retirement fund to pay your hospital bills. Disability protects your family in case you get injured and cannot work any more. If you do not have disability insurance in this case, you might get into financial trouble for it. 

Pay Off Your Home as Early as You Can

Owning a home is a great prospect because the home is an asset that could come in handy in the future. However, a home can also make you stagnate. If you are paying more than 25% of your income on a mortgage, you might not have enough left over to save or invest. If possible, you should try to pay your house off as early as possible. That might mean increasing your monthly payments or even maxing them out if it is possible. 

Paying off your house faster also means you pay less interest overall. Also, once you complete paying for the house, you can start putting the money that would have gone to the mortgage into a retirement fund.

Make Automatic Contributions

Voluntary contributions are a challenge for a lot of people. This is because once they receive a paycheck, they think of all the areas they can put the money and use it all before they save any of it. Switching to automatic savings and contributions can help eliminate this problem. 

These contributions can be scheduled to occur monthly or when you receive a paycheck. Using automatic contributions will help you maintain a constant rate of saving or ensure some of your money goes into investments that help in building wealth.

Consider a Side Business

If you have difficulty contributing to wealth-building activities, it would be a good idea to consider a second source of income. This could be a side business or taking on a side gig.

Starting a business can be challenging, especially because you may already have a full-time job. However, it is not impossible, especially if you consider businesses that do not require a lot of input from you. A side gig is a better alternative because it allows you to choose your work hours around your existing schedule. A side gig also allows you to work as much or as little as you want, thereby giving greater control of the extra amount of money you can make.

Take Advantage of Tax Deductions and Refunds

Tax deductions and refunds can act as a source of money that you can put into wealth building. This is why it is so important to try to take advantage of tax refunds and deductions, especially if you are self-employed. To maximise your deductions and refunds, you should talk to an accountant. They will look into your finances and help you take advantage of every opportunity to save money or have the money refunded to you. The most important thing here is that once you get the tax refund, you should put that money towards building wealth instead of using it for something like financing your next home.

Match Employer Contributions

Lastly, if your employer is contributing to your retirement fund, try to match the amount they contribute. If you do so, you will end up with twice the amount of money you would have otherwise retired with. 

Growing enough wealth to retire comfortably takes a lot of planning as well as time. It might also require that you make some concessions such as downgrading your life and putting more towards saving and investing. However, if you put the right plan in place and follow through, you will not only improve your chances of having a comfortable retirement, but also the chances of retiring early.

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