Building wealth is not nearly as complicated as some might believe. It is as simple as committing to paying yourself first. Most of us are so familiar with the admonishment about paying ourselves first that it has become something of a cliché. Yet that does not lessen the wisdom behind what is a sound piece of advice even if few actually put the concept into practice. Many of us pay everyone else before we even think about putting aside a few dollars in our own savings or investment accounts. It is easy to get so caught up in living payday to payday and in paying mortgages, rent, car loans, and credit card bills that you fail to think about your financial future. The fact is you will never experience the financial security that building wealth provides unless you commit to following this age-old truth of wealth building and learn to pay yourself first.

Strategy for Building Wealth

A simple but very effective strategy for building wealth is to save and invest the first ten percent of gross income. At first blush, many people may dismiss the idea of saving ten percent as impossible. Yet you might be surprised how easily you could do exactly that by sitting down and creating a budget to track your income and expenses. Many have little idea where their money actually goes each month. We all have fixed expenses that we must pay but often a greater share of a person’s paycheck goes towards discretionary spending on things like dining out, expensive vacations, recreational activities and the like. Those who carry high credit card balances pay out substantial amounts of their monthly income to credit card companies as interest on debt. Discretionary expenses and credit card interest are two areas ripe with possibility for finding that ten percent to save. If you have lots of credit card debt, you would be wise to develop a plan for paying down and paying off your debts before starting a savings program. It is unlikely you will find any investment that would yield comparable returns to rates charged by credit card issuers. Once your debts are under control, you should start saving and investing as soon as possible because time is the best ally to those seeking to build wealth.

One of the wisest ways to pay yourself first is to have money deducted from your paycheck before you even get it or by having sums automatically transferred from your primary bank account to a savings or investment account each month. Most people find that after a very short time they do not even miss the money because it never passes through their hands. They quickly adapt to living on ninety percent rather than one hundred percent of their income. If you choose to save and invest by taking advantage of directing the money withheld from your paycheck to a 401(k) plan you can become wealthier even faster. The tax deferral aspect of retirement accounts and the fact that employers often offer matching funds to augment employee 401(k) contributions can make your account grow even faster.

Why Wealth Building Works

Historically, based on the S&P 500, the stock market has returned an average of 10% annually (with dividends reinvestment), since the 1920s. Developing the habit of saving and investing a portion of your income allows you to participate over time in the profits available from investing in the stock market and allows you to harness the power of compound interest. As an example, if you saved only $100 per month and earned an average return of 10%, in ten years your $12,000 investment would be worth more than $20,000. After 30 years and after investing only $36,000, your account would be worth almost $228,000. That is the power of compound interest and an illustration of why time is so important to the investor. The longer you have your money invested and working for you, the greater the benefits.

There is no time like the present to begin taking the steps necessary to secure your financial future. Paying yourself first and saving 10% of your income are simple yet effective tools for building wealth and achieving your financial goals.