How To Build Wealth On A Low Income

Building Wealth is something that's only achievable when you have a high income however regardless of whatever your income is if you can learn basic knowledge of financial organization investing in the stock market then you can build wealth in your own life and so this video is going to act as a guide to people who have no knowledge on these subjects to help you build wealth in your life and in this video we're going to cover a variety of different topics that can help you get started on your journey to build wealth.

We're going to cover what wealth is building an emergency fund developing a basic investment strategy employer-sponsored retirement accounts individual retirement accounts in brokerage accounts and I hope by the end of this video you can start taking steps in your own life to build wealth and become more financially comfortable and everything is time stamped low and also in all my videos I always provide a lengthy summary in the description of what we talk about so feel free to check that out so on your journey to Building Wealth in your life let's first talk about what is wealth when it comes to Building Wealth in your own life I find it extremely important to first talk about what exactly wealth is because I think that most people have a distorted view of a wealth or what it means to be wealthy I think that influencers celebrities and billionaire entrepreneur Heroes have given us this view that a wealthy person lives in a mansion has a variety of sports cars wears designer clothing has Rolex watches in a no limit credit card but this is not what wealth is real wealth is having Financial knowledge assets that make you money limiting your liabilities avoiding death and having a long-term mindset real wealth is not about having a bunch of nice stuff but it's about having a financial life that doesn't hold you back it's about using money as a tool to allow you to live the life that you want whatever that may be so don't chase this superficial influence review of wealth and instead focus on developing real wealth that.

Allows you to live the life that you want so now that we've talked about that on your journey to Building Wealth I think the first thing that we need to talk about is building an emergency fund besides employees sponsored retirement accounts which we're going to talk about later on in this video I personally believe and this is just my opinion that before you start Building Wealth in the stock market you first need to focus on building your emergency fund in an emergency fund is a financial safety net for unexpected life expenses and these are things like an unexpected car expense a medical expense or when you lose your job we never know what's going to happen in life and so we need this money to protect us against life's emergencies if something unexpected happens in life you can use this money to cover it and ideally this should be six to 12 months of living expenses and on your journey to Building Wealth the reason I believe that you should focus on the emergency fund before investing in the stock market is because you never.

Want to be impressed to take Investments out at a loss the stock market can be very unpredictable so we want to build this solid emergency fund first because we never want to be pressured to take out stocks to cover our emergency when you're building your wealth the first step is simply just open up a savings account to separate your emergency fund money from your spending money and over time build that up to six to 12 months of living expenses and to get a decent interest on your emergency fund I'd recommend looking at the bank Ally that currently has a four percent APR which is insanely high so this emergency fund is the first step to Building Wealth in your life and once you have a solid emergency fund or you complete your emergency fund to begin really growing your money and Building Wealth we now need to start investing our money to get it to grow over time and get it to work for us and to do that let's first talk about developing a basic investment strategy now before we can start investing our money we first just need to develop a basic investment strategy to grow our money and build our wealth over time and to do that let's listen to one of the greatest investors in the world Warren Buffett and how he believes that we should invest our money the best single thing you could have done on March 11 1942 when I bought my first duck was just by an index fund and and and never look at a headline never think about stocks anymore just like it Warren Buffett believes that the average investor shouldn't invest in stocks but just choose to buy low-cost index funds.

Forget about it and I think we should side with Warren Buffett because it's so simple and we should just invest our money in low-cost index funds and forget about it and I'm not going to go in detail about index funds because that's a whole video and I made the video up here but our basic investment strategy starts with choosing to invest in index funds and to continue on developing this strategy our next question is how often should we purchase index funds well I believe and this is just my personal opinion that we should follow a strategy called dollar cost averaging which is spreading out your purchases over time in what this basically means is that you say I can invest 100 a month in a low-cost index fund and if the market is normal you buy one hundred dollars that month if the market crashes and is low you buy one hundred dollars that month if the market is an all-time high you buy one hundred dollars a month in the price you pay averages out over time and we do this because we don't know when the market is going to go up or down so instead of trying to time the market we just spread out our purchases over time and again this is called dollar cost averaging and so that's our basic strategy to build wealth over time one invest in low-cost index funds and two dollar cost average it's the Warren Buffett approach it's so simple and there's a quote by Warren Buffett that goes it's not necessary to do extraordinary things to get extraordinary results and so now that we've created this basic investment strategy I now want to go through three different accounts that you should.

Consider getting that can help you build your wealth and grow your money over time and each account will provide different value in different ways so the first account that I want to talk about is employee sponsored retirement accounts the first account that can help you build your wealth over time are these employees sponsored retirement accounts and the most common one is a 401k which is a pre-tax investment now let me explain how a 401k Works let's say you make one thousand dollars now before you get that money you have to pay taxes on it maybe 20 and then you get your take-home pay but now let's consider your employer offers you a 401k plan and you decide that you want to contribute five percent of your pay to that 401k plan how this works is before your money gets taxed your employer takes out five percent of your pay which is fifty dollars puts it in a 401k account which we invest in a low-cost index fund and then your money gets taxed and you get paid and so your money goes a little bit further in these accounts because when you put your money.

In the money hasn't been taxed yet for example if you chose to contribute five percent of your take-home pay that would only be forty dollars and so the first benefit of this account is you can contribute tax-free and a common thing with these accounts and one of the big benefits of these accounts is something called an employer match now let me explain how this works let's say your employer has a match of up to five percent so like before you choose to contribute five percent of your pay to the 401K which is fifty dollars but because you have a five percent match your employer also contributes five percent to your 401k so your contribution is one hundred dollars and so with this account you're able to grow your money a little quicker and although the contribution is tax-free it's important to know that when you retire and decide to withdraw the money you will have to pay taxes on it but using these accounts is a great way to build your wealth over time because one you can contribute tax-free in two employers often have matches

So look to see if your employer offers a 401k plan and try to maximize the match because it's like getting a little bonus from your employer it's almost like getting free money that's going to help you build your wealth a lot quicker and so now the second account that we need to talk about to help you build your wealth over time our individual retirement accounts so the second account that's going to help you build your wealth over time are these individual retirement accounts in the names of them are a Roth IRA in a traditional IRA but in this video we're just going to focus on the Roth IRA now as I just explained a 401k is a pre-tax investment so your contributions are tax-free but your withdrawals are taxed a Roth IRA on the other hand is an after-tax investment where your initial contribution is taxed but your withdrawals are tax-free now this might sound confusing so let me explain how this works let's say just like before you make one thousand dollars and that money gets taxed about 20 percent which makes your take-home pay eight hundred.

Dollars and you decide to contribute five percent of your take-home pay to your Roth IRA which is forty dollars so you're still choosing to invest five percent but it's a little less because that five percent has been taxed now let's go to the compound interest calculator and see what happens to your investment over time so you're investing forty dollars a month in your Roth IRA and you do that for the next 30 Years the stock market has an annual return of ten percent so let's click calculate so 30 years later when you decide to retire that forty dollar monthly investment has grown to seventy eight thousand nine hundred and fifty Seven dollars and so let's break that down now you only put 14 and 400 of your own money but the interest you gained off the contribution is sixty four thousand five hundred and fifty Seven dollars that is the beauty of the stock marketing compound interest but to make it sweeter because you chose to invest in a Roth IRA when you decide to retire and withdraw that money you do not have to pay one penny in taxes of that sixty four thousand five hundred and fifty Seven dollars of interest because you already paid taxes on the money before you contributed Roth IRAs are the crown jewel of investment accounts because you gain all this interest over time that helps you build your wealth but once you choose to withdraw it you don't have to pay any taxes on it versus a 401k you can contribute tax-free but when you withdraw it you have to pay tax on the interest and so you should get one of these accounts no question and how do you get.

One of these accounts where you simply go through a brokerage like Schwab or Vanguard or Fidelity and they can help you and walk you through how to get one of these accounts and not only contribute to these accounts but more importantly to invest with these accounts because the interest you gain off your investment is going to be a lot bigger than the contribution that you put in if you choose to invest it over a long period of time I mean the tax advantages of these accounts is incredible however they do have a yearly limit of sixty five hundred dollars these accounts are a great way to build your wealth over time and as I said in my example even a small contribution of forty dollars a month can grow to this massive amount over time in the final account that I want to talk about that can help you grow and build your wealth our brokerage accounts so let's quickly review the different ways that we can build wealth in our lives we can build an emergency fund we can develop a basic investment strategy we can take advantage of employer.

Matched 401ks and we can open a Roth IRA so the final strategy to build wealth sort of encompasses everything that we've talked about in this video which is open up a brokerage account and invest in the stock market a brokerage account is just a basic investing account that allows you to invest in stocks bonds mutual funds ETFs CDs and many other things in those different Investments are a whole different video and I'm thinking about making a video on how to invest in the stock market so if you're interested in that video let me know and I can make that video but when you open up a brokerage account you can begin investing in the stock market and just dip your toes and learn about investing the stock market is an amazing tool that can help you grow your wealth over time and we should all take advantage of this tool and so those are the five different ways to build wealth over time and as I said in the beginning of this video real wealth is having Financial knowledge as assets that make you money limiting your liabilities avoiding debt and having a long-term.

Mindset it's not about having nice things but it's about creating a financial life that doesn't hold you back and I hope that after this video Once you continue on your day regardless of whatever your income situation is you can begin implementing some of these different strategies to build wealth in your life and use money as a tool to do what you want because as I mentioned even something as small as a forty dollar a month contribution can add up to something massive over time it's not necessary to do extraordinary things tO get extraordinary results all it takes is some education some Financial Planning.