5 Most Popular Ways People Build Wealth

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Do you feel wealthy? According to a recent survey by LendingTree, only 21% of Americans currently see themselves as wealthy, and only 38% who don’t see themselves as wealthy believe they ever will be.

But building wealth has a proven formula, and here are the five most popular ways that people build wealth, as well as the steps you can take to build wealth.

1. Owning a Home

Homeownership remains the No. 1 wealth builder in America, and for good reason. According to the survey, 36% of respondents own a home, making it the most popular wealth-building strategy.

As you pay down your mortgage, you’re steadily building equity, which is the value of your home minus what you owe. Over time, that equity can grow through rising property values and debt reduction.

But buying a home is probably the biggest financial decision of your life, and it takes some time to save up enough to get there. Here are a few steps you can take right now to prepare yourself for building wealth through homeownership:

• Check your credit score and pay down high-interest debt (before applying for a mortgage).
• Save for at least a 10% to 20% down payment to avoid expensive private mortgage insurance (PMI).
• Aim for a mortgage payment under 25% to 30% of your monthly income when researching homes in your price range.
• Start saving your down payment in a high-yield savings account to earn interest while you save.

2. Saving for Retirement

Saving for retirement is one of the simplest paths to building wealth, and 33% of respondents are utilizing that strategy. Putting money away on a regular basis in tax-advantaged retirement accounts allows you to take advantage of compound interest and lower your taxes at the same time.

Here are a few steps you can take to start building your retirement portfolio so that you can have real wealth later:

• If your employer offers a 401(k) match, contribute at least enough to get the full match (typically a percentage of your salary). This is literally free money.
• Open a Roth IRA and contribute up to $7,000 per year (or $8,000 if you’re 50 or older).
• Automate your contributions so you’re investing consistently every time you get paid.

3. Putting Money in an Online Savings Account

Saving money can help you feel more financially free and is an important first step when you’re trying to build wealth. The best place to put your savings is a high-yield savings account, and 29% of respondents are utilizing this strategy.

Having a solid savings account gives you more financial stability and helps you be able to handle financial emergencies without pulling out the credit card. Here’s how to get started with saving:

• Open a high-yield online savings account at a reputable bank or credit union.
• Set up automatic transfers from your checking account every payday, even if it’s just $50 or $100.
• Use this account for your emergency fund (three to six months’ worth of expenses) and short-term savings goals like vacations, car repairs or home projects.

4. Investing In the Stock Market

Investing in the stock market allows you to start earning money from company growth, dividends and interest. Some of the biggest fortunes in the U.S. were built through stock market investing, and most wealthy people have a substantial amount of their money tied up in the market. In the LendingTree survey, 24% of respondents were investing as a wealth-building strategy.

But investing in stocks can feel overwhelming to beginners. Instead of buying individual stocks of companies you think might make you money, instead pick a mutual fund or index fund that owns a lot of stocks within a single fund. This lets you instantly diversify, grow your portfolio and lower your overall investing risk. Here’s how to get started investing in the stock market:

• Open a brokerage account through a reputable broker (like Schwab, Fidelity or Vanguard).
• Focus on broad, diversified index funds rather than trying to pick individual stocks.
• Start small ($25 per paycheck, or even $100 per month).
• Stay invested long term. Let your money rise and fall with the market, but continue to invest over a long period of time to enjoy growth.

5. Working With a Financial Advisor

Nearly 1 in 5 Americans are working with a financial advisor to build wealth. A good financial advisor can help you clarify your money goals, optimize your taxes and stay disciplined when the market gets volatile.

Here’s how to find a good financial advisor:

• Look for a fiduciary advisor that is legally required to act in your best interest.
• Interview a few advisors before hiring. Ask how they’re compensated (fee-only or flat-fee is best).
• Start with a one-time financial plan or coaching session if you can’t afford ongoing management.

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