The Five Stages to Wealth Building

Many people who want to become wealthy are waiting on some big payday or a lucky break. That is seldom how it works.

Preparation meeting opportunity is a better formula for wealth. To take advantage of those opportunities, you must stay prepared. If you are living paycheck to paycheck, an opportunity could come your way, but you won't be able to take advantage. The first step is to create some financial space.

Stage 1 - Protect What You Have

The first stage to building wealth is creating a plan to save and protect what you currently have. This is the first stage because it is a priority. One of the primary reasons people want to secure wealth is their families' security, whether it's children or aging parents. We all like to think we are invincible, but we are mortal. Get a quote on a life insurance policy. Get something that is within your current budget that you can easily pay monthly. Get a quote on life insurance policies for the breadwinners of the family. If you have a mortgage, get mortgage insurance. If you are not currently able to purchase these plans, you will create room in the second stage. Wealthy people always protect their wealth and their family's financial health.

Stage 2 - Control Spending

The second stage of building wealth piggybacks off stage one. Control your spending. Take an honest look at your spending. Are there areas where you can reduce spending? Areas to consider are communication, food, and entertainment. Do you and your family eat out often due to lack of planning? Do you have entertainment apps you rarely use or could do without? Consider rotating your apps every few months. Are you double paying for communication? Do you have a landline that never rings?

Stage 3 - Create Budget

Controlling spending requires creating a budget that includes funds for your insurance quotes. If your budget is tight, initially, you may have an option to add an insurance policy with your employer for minimal cost. These policies are typically small, but a least you have immediate protection for your family. Your budget's ultimate goal is to get to where all your living expenses consume 50% of your income or less, 20% of your income is allocated for savings, 10% set aside for future investments, and the other 20% for entertainment, leisure, hobbies, and charity. Continue to make adjustments to get to this ideal financial plan. Budgeting is not about stripping down to nothing; it's about creating priorities for your money. If you love a night out, maybe reduce it to twice a month instead of weekly. If you love gourmet coffee, perhaps you invest in a gourmet coffee machine to reduce the $5/day latte expense. After you have squeezed all you can get from your current income, its time to look at other areas for creating wealth.

Stage 4 - Grow Income

Now one of the most important stages of building wealth is growing your income. At this point you have created a budget that allows for 10% savings and hopefully insurance to protect your family. Budgeting can only take you so far. Now its time to focus on growing your income. Increasing your income requires you to evaluate your skills and your job or business. Do you have a marketable skill that can allow you to do some contract work or maybe start a business? Are you a professional that could aim for a promotion. Do you need additional education to obtain that promotion? Do you own a business? Can you offer additional services or simply expand your business for more income. If you are a business owner, you have to budget your business finances similar to your personal income.

Stage 5 - Invest

While all of these stages remain fluid, the last stage is investment. Without investment you are trading time for money, which makes it difficult to achieve wealth. This is the phase that allows your money to go to work for you. The motto with investments is don't lose money, but there is always risks involved with investing. The easiest way to invest is through a 401k at your job, especially if your company matches your investment. Not investing in a company-matched 401k is synonymous with burning money. IRAs are another form of low-risk investments.

There are many options for investment. Can you invest in a business model that allows for passive income? It's important to start where you are? Your initial investments can be small. Your investments will increase as your income increases. As your income grows, you may consider real estate or stocks. You may decide to invest in a startup. Start educating yourself now. The plan is to reduce your risk as much as possible by making smart investments. Use experts to help you invest wisely.

This article may not be sexy. It doesn't discuss lavish spending and extravagant homes and cars. Wealth is built in stages and phases. If you start spending lavishly with the first sign of increased income, you are setting yourself up for failure. These are the four stages of wealth building success. The fifth stage is rinse and repeat until you reach your goals. If you want that lavish home, you make those purchases after your income, and the dividends from your investments create that space in your budget. Determine the income required for the future lifestyle you desire and focus on reaching those financial goals, step by step.