Wealth Building 101

Team RINO INVEST
January 5, 2021

A journalist once asked Albert Einstein what he considered mankind’s greatest invention to be. Without missing a beat, Einstein replied, “The compounding of interest.”

I like this quote because it makes a point that too many financial gurus tend to overlook, namely that wealth is really just a function of savings and investments plus time. You don’t need to be a financial genius (or even a scientific genius) to get started. Here are a few tips to get you on the path to building the most financially secure future possible:

Make a budget and pay yourself first. Make personal savings a line item in your budget, not something you contribute to whenever you find yourself with a few spare dollars. Have your payroll department divert the amount you want to save from your take-home pay into a separate savings account. If you don’t see the money, you won’t spend the money. When you’re ready, you can transfer money from a savings account into an investment account where it can grow more quickly.

Take advantage of an employer-sponsored 401K. Employer-sponsored retirement accounts, such as a 401K, 403B, or TSP can help you grow your retirement savings. If your employer offers a matching contribution, find out what the match is and contribute enough to earn the full match. If your employer matches contributions up to 5%, then if you save 5% of your salary in your 401K, your employer will match that for a total savings of 10%. If you can make your savings as a “before tax” contribution, then you will not pay income taxes on the money you save now.

Open a Roth IRA. An Individual Retirement Account, or IRA, is a personal retirement savings account. Money you put into a Roth IRA is not tax-deferred, so you don’t get a tax break for saving. But your money grows tax-free in a Roth IRA, so you won’t pay taxes on any future withdrawals you make from this account.

Invest in Exchange Traded Funds (ETFs) or Mutual Funds. ETFs and Mutual Funds are good options for a new investor looking to set up a diversified portfolio. ETFs are fund vehicles that are traded on stock exchanges. There is no minimum investment required to buy into an ETF, and your gains can be automatically reinvested. Mutual Funds are professionally managed portfolios often referred to as a “basket” of stocks and securities. They tend to be a safe way to invest over the long term.