When it comes to building wealth, follow these simple rules. First, spend less than you make. Be smart about using loans and use your credit cards wisely. Second, save regularly. Third, invest your savings.
Save regularly
Wealth creation originally comes from a high savings rate. If you only save $100 a month, you’ll only manage to save $36,000 over 30 years. A high savings rate is even more critical early on in your wealth-building journey when you’re investing your money for the long haul. The savings of $36,000 over the three decades would jump to $100,562 when returning 6% per year.
30 years! That’s taking too long to reach $100,000. To achieve the $100,000 milestone sooner, one straightforward action you can take is to save more.
What if you’re able to boost your savings to $500 a month? On savings alone, you’ll reach $100,000 in 12 years and $180,000 in 30 years. If you get a 6% return annually, you’ll achieve about $502,810 at the end of the period. These scenarios assume that all returns from your investments are reinvested for the same 6% rate of return.
It follows that the more you save and invest early on, the bigger the snowball rolls down the hill thanks to the compounding interest effect. Your savings will pull more weight in growing your wealth in the early stages, but as the years go by, the returns from your investments will stand out much more.
| Year | Save & invest $100/month | 6% growth rate |
| 0 | $0 | $0 |
| 1 | $1,200 | $1,272 |
| 2 | $2,400 | $2,620 |
| 3 | $3,600 | $4,050 |
| 4 | $4,800 | $5,565 |
| 5 | $6,000 | $7,170 |
| 6 | $7,200 | $8,873 |
| 7 | $8,400 | $10,677 |
| 8 | $9,600 | $12,590 |
| 9 | $10,800 | $14,617 |
| 10 | $12,000 | $16,766 |
| 11 | $13,200 | $19,044 |
| 12 | $14,400 | $21,459 |
| 13 | $15,600 | $24,018 |
| 14 | $16,800 | $26,731 |
| 15 | $18,000 | $29,607 |
| 16 | $19,200 | $32,655 |
| 17 | $20,400 | $35,887 |
| 18 | $21,600 | $39,312 |
| 19 | $22,800 | $42,943 |
| 20 | $24,000 | $46,791 |
| 21 | $25,200 | $50,871 |
| 22 | $26,400 | $55,195 |
| 23 | $27,600 | $59,779 |
| 24 | $28,800 | $64,637 |
| 25 | $30,000 | $69,788 |
| 26 | $31,200 | $75,247 |
| 27 | $32,400 | $81,034 |
| 28 | $33,600 | $87,168 |
| 29 | $34,800 | $93,670 |
| 30 | $36,000 | $100,562 |
Invest for higher returns
A 6% long-term rate of return is pretty standard. In fact, if you were on top of market trends, you should be able to get at least the long-term average market rate of return of 10%. You would know which are the growing industries and could buy the exchange-traded funds (ETFs) in those areas. Online brokerages make it easy to invest nowadays with low trading costs.
If you prefer a more diversified investment portfolio, you could consider balanced ETFs or a mix of bond funds and equity funds. Some online brokerages even offer automatic rebalancing of a diversified ETF portfolio so that people can enjoy their lives and do what they love if they fancy doing other things over managing their investments.
| Year | Save & invest $500/month | 12% growth rate |
| 0 | $0 | $0 |
| 1 | $6,000 | $6,720 |
| 2 | $12,000 | $14,246 |
| 3 | $18,000 | $22,676 |
| 4 | $24,000 | $32,117 |
| 5 | $30,000 | $42,691 |
| 6 | $36,000 | $54,534 |
| 7 | $42,000 | $67,798 |
| 8 | $48,000 | $82,654 |
| 9 | $54,000 | $99,292 |
| 10 | $60,000 | $117,927 |
| 11 | $66,000 | $138,799 |
| 12 | $72,000 | $162,175 |
| 13 | $78,000 | $188,356 |
| 14 | $84,000 | $217,678 |
| 15 | $90,000 | $250,520 |
| 16 | $96,000 | $287,302 |
| 17 | $102,000 | $328,498 |
| 18 | $108,000 | $374,638 |
| 19 | $114,000 | $426,315 |
| 20 | $120,000 | $484,192 |
| 21 | $126,000 | $549,016 |
| 22 | $132,000 | $621,617 |
| 23 | $138,000 | $702,931 |
| 24 | $144,000 | $794,003 |
| 25 | $150,000 | $896,004 |
| 26 | $156,000 | $1,010,244 |
| 27 | $162,000 | $1,138,193 |
| 28 | $168,000 | $1,281,497 |
| 29 | $174,000 | $1,441,996 |
| 30 | $180,000 | $1,621,756 |
Investor takeaway
Start saving and investing as early as you can. In the beginning, your savings rate is the core engine growing your wealth. Later, your investments will pull a bigger and bigger weight, especially if you are able to generate high returns in the long run.
If you’re interested in investing, read more about the subject. On trying something new, you might want to test out the waters instead of betting big initially.
