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You don’t have to strike gold in Silicon Valley or make it big on Wall Street to get wealthy. In fact, there’s an even easier way: Save early, consistently, and automatically.
Business Insider recently asked a handful of certified financial planners (CFPs) to share their favorite way to build wealth. They overwhelmingly endorsed automating savings through retirement account contributions or auto-transfers between bank accounts.
“Through automation, you’ll spend less time thinking about saving and can use that free time and mental capacity to better yourself; whether that’s making yourself more marketable to increase earning potential or figuring out your passion and purpose and making a career out of it,” said Andrew Westlin, a CFP at robo-advisor Betterment.
“I don’t try to time the market, I don’t follow the latest hot stock or fad, just save and invest systematically every month or out of every paycheck consistently,” said Luis Rosa, a CFP and founder of financial-planning firm Build a Better Financial Future.
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Nick Vail, a CFP at Integrity Wealth Advisors, said his favorite way to build long-term wealth is to “set a big goal and attack it. The best way to do it is to take the emotion of it and automate your contributions.”
Start with your employer-sponsored retirement account
Anyone can automate their savings, all it takes is five minutes at the computer. Start with the lowest-hanging fruit: Your employer-sponsored retirement account.
Anjali Jariwala, a CFP and CPA at Fit Advisors, a financial-planning firm that caters to physicians and business owners, said her best tip is to “maximize retirement vehicles like 401(k)s, 403(b)s, HSAs, Roth IRAs, etc.” The contributions to a 401(k) or IRA are pretax, so the money will be taken out of your paycheck before it even hits your bank account.
“If you’re an employee, make sure to take advantage of the employer match in your 401(k),” Rosa said. Many employers will match your contribution up to a certain percentage or dollar amount. It’s basically free money, but you won’t get any of it unless you’re already contributing something on your own.
“After those are maxed out then ensure you are maximizing savings,” Jariwala said.
Deposit part of your paycheck into a savings account automatically
Login to your payroll provider and direct a portion of your paycheck into an account that isn’t used for everyday expenses. You may even consider choosing a separate bank for your savings so the money doesn’t tempt you to spend it every time you check your bank account.
“Challenge yourself to increase your savings rate every time you get a raise, or even on a regular cadence, such as once per year,” Westlin said.
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Most financial experts say you should aim to save at least 10% of your income — such as half in a tax-advantaged retirement account and half in liquid savings — but start where you’re comfortable. Even 2% or 5% works, as long as you’re consistent.
“They know from experience that wealth-building is a long-term frame, and they’ve seen that sticking to the plan over decades leads to millions at retirement,” Hogan wrote in his book “Everyday Millionaires.”
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