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Once you start your first job, you have the potential to begin building wealth. There is a roadmap that can improve your chances to achieve financial security. That roadmap starts with controlling credit card debt, having an emergency fund for unexpected expenses, and setting aside a portion of each paycheck to invest in your medium and long-term goals, including a comfortable retirement. Here are ten tips to build wealth through saving and investing.

1. Have an intentional spending plan that leaves room to save and invest.

Once you start earning a regular paycheck, the next step is to get a handle on your average monthly expenses. Understanding the income you have coming in and the financial obligations you owe every month will empower you to build a budget, or an intentional spending plan, that ensures you have room to save and invest for the future.

Pro tip: avoid an expensive car purchase. A $40,000 car can come with a car payment over $800 per month. Your four-year car loan will limit your ability to achieve other important financial goals, like saving, investing, paying off debt, or having extra spending money.  

2. Be smart about credit card debt.

Credit cards charge high interest rates if you can’t pay off your balance at the end of the month. That interest increases the price you pay for the items you buy and may stretch your debt over many years. No investment will give you guaranteed returns to outweigh the high interest rate you generally pay with a credit card or other high interest debt, so get serious about paying that down. And if you don’t have credit card debt, congratulations! Keep showing the discipline to keep your credit card charges to an amount you can afford to pay in full each month.

Road Map
The roadmap to building wealth begins with smart use of credit, starting an emergency fund in the bank, and then consistently investing a portion of each paycheck during your career. This formula has worked for millions: regular investments + time = wealth.

3. Start saving and investing regularly.

There is a proven formula when it comes to building wealth: your regular investments + time = wealth. Youth is your superpower! The earlier you start, the longer you have to save for your future! To put that formula into action, take at least two action steps as soon you start earning income:

  • Start an emergency fund in a savings account at your bank or credit union and automatically deposit a certain amount of money directly into that account each pay period. That money can help you avoid going into debt if you have an unexpected expense.
  • And, most importantly, begin investing some portion of what you earn, and do it consistently over your entire career. Investing has more risk than money kept in the bank, but it also gives you a better chance to create wealth over the long term.

4. 401(k)s and IRAs have advantages that make them great building blocks of investing.

Some jobs offer workplace retirement saving plans to help their employees prepare for their retirement. When beginning your investing journey, consider your workplace retirement plan, often called a 401(k), as a starting point because your contributions give you a tax break and your employer may match your contributions up to a certain amount – that’s free money!

Money
A 401(k) match is like getting two coins every time your gaming character jumps up: one from your contribution and the second from your employer. You will build wealth that much faster!

Caption: A 401(k) match is like getting two coins every time your gaming character jumps up: one from your contribution and the second from your employer. You will build wealth that much faster!

Many employers offer 401(k)s, but if you work for a non-profit or government it might be called a 403(b) plan. The money you invest there will stay with you even if you change jobs. Over your career, you might change jobs a lot, and you may have several of these plans over time.

A second building block of investing is an Individual Retirement Account (IRA), which you can set up yourself. IRAs also offer tax advantages.

For the best chance of success, automate your contributions to keep building wealth each time you get paid, instead of having to make multiple separate decisions each year to prioritize saving and investing. The sooner you start investing, the easier it will be to reach your goals. If you wanted to have $500,000 by the age of 65, this chart shows how much you’d have to invest each month, assuming a 7% average annual return:

Begin Investing

$500,000 by Age 65

Age 18

$127/month

Age 25

$209/month

Age 35

$441/month

Age 45

$1,016/month

Age 55

$3,016/month

  Source: Investor.gov Savings Goal Calculator

5. Diversify to lower the risk of investing.

When choosing an investment option within your 401(k), IRA or any other investment, a diversified fund that spreads your investment across many companies/securities may reduce the risk of investing. That’s because if one or a few stocks or industry sectors lose value in any given time period, your exposure to other parts of the market may improve your returns.

Pro Tip: a popular investment option is called a “target date fund,” where you can choose a date in the future (your target date, often retirement) when you will need your money. Target date funds will automatically adjust the way your money is invested from a more aggressive, stock-heavy portfolio earlier in your career to a more conservative mix of investments as you approach retirement. It’s sort of like putting your long-term investments on auto-pilot.

6. Be careful with investment apps.

Investment firms may market financial technology, or fintech, to assist with investing, budgeting, borrowing, and other financial needs, in an app. These apps can provide you with convenient tools to make and to monitor your investments, but apps may give you access to complex products or strategies for sophisticated investors. Also, be aware that some apps may “gamify” the process of investing and nudge you to trade more than your comfort level. Don’t let any investing app take you out of your long-term strategy. Here are three tips when choosing an app:

  • Determine the purpose of the app and whether it suits your needs. For example, some are better suited for experienced investors who are used to making investing decisions on their own. Others cater more to novices and offer more support and education tools.
  • Pay attention to fees and associated costs. Some fees might not be immediately clear, and some free apps might try to steer you toward other products, like loans or credit monitoring services, that may require payment.
  • Pay attention to how much of your information and data the app is able to access. Some apps will aggregate all of your financial accounts onto their platform and maintain this information. This can be a convenient way to manage your money, but it also leaves you vulnerable if the app is hacked or its security is compromised.
If I trade more, I’ll profit more, right? Probably not. Research has generally shown that frequent trading is more harmful than helpful to your investment returns over the long term. Even frequent traders who make profitable trades may pay more, because short term trading is typically subject to higher taxation than investments held for at least a year. For more information about taxation and investments, consult a tax advisor or visit the IRS website.

7. Be cautious if considering crypto asset securities.

Investments in crypto asset securities can be exceptionally volatile and speculative. The platforms where investors buy, sell, borrow, or lend these securities might not be complying with applicable law, including federal and state securities law. As a result, investors using these platforms might lack important protections. Unregistered offerings in crypto asset securities may not provide important information investors need to make informed decisions, including audited financial statements. Crypto asset securities-related investments continue to be replete with fraud and outright theft. The risk of loss remains significant, and the only money you should put at risk with any speculative investment is money you can afford to lose entirely. Learn more about crypto asset risks at Investor.gov.

8. Protect yourself from scams.

Scammers use social media, text messaging, and other means to market fake investments, often making getting rich from investing seem easy or quick. In fact, investing is a long game, and most folks build wealth by steadily investing throughout their careers. Here are concrete steps you can take to protect yourself from investing in a scam:

  • If an investment sounds too good to be true, avoid it. Promises of high or guaranteed returns are common tactics of scammers. There are no shortcuts to building wealth, and almost nobody does it overnight.
  • If you plan to use an investment professional, check their background on Investor.gov to make sure they are licensed and registered. Unlicensed, unregistered people commit much of the investment fraud in the United States, so you should always check to see whether someone is registered with the SEC or with the securities regulator in your home state before making a decision to invest with them. 
  • Don’t fall for FOMO: fraudsters try to tap into your desire to get in on the ground floor of a cutting-edge investment, often using the latest innovation, technology, product, or growth industry to lure investors into scams. Examples include crypto assets and artificial intelligence.  
  • Pay attention to payment methods. Scammers love to ask investors to pay for investments by wiring money abroad, sending gift cards, or using crypto assets. These are red flags of fraud.
  • Learn more about the tactics scammers use on our HoweyTrade webpage.
HoweyTrade

9. Secure your online investment accounts.

You should always take steps to safeguard your personal financial information (for example, social security numbers, financial account numbers, and usernames and passwords for online financial accounts). Pick strong passphrases with multiple symbols, numbers, and capital and lower-case letters, and use multifactor authentication, so if someone attempts to log into your account with your username and password, they also need to enter a unique code sent to you by e-mail or text message. Consistently update your devices to make sure the software and apps remain up-to-date with the latest software fixes and security patches. To learn more, read our Investor Bulletin “Protecting Your Online Investment Accounts from Fraud.”

10. Use Investor.gov for free tools and resources on investing.

Investor.gov has tools and resources that can make you more likely to build wealth and less likely to engage with a scam. Additional resources:

Additional Resources

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