During these strange and trying times, we’ve no doubt found ourselves being more thoughtful and guarded with our financial habits. Even if your income has not been directly affected by the COVID-19 pandemic, the state of the economy means that we’re all on edge. The future seems uncertain. Whether your budget has taken a hit because of income loss or you’re adjusting as a means of risk management, a lot of us are trying to rein in spending and be wise with our finances.
Our first instinct is to minimize risks, spend as little as possible, and put a hold on investing. The priority tends to be on saving. This in itself isn’t a bad thing — after all, we all need to maintain a financial safety net.
When your budget is tight, you become all the more aware of your need to save money. However, a tight budget doesn’t mean you have to put your wealth-building efforts on hold. You can grow your net worth and your wealth even when your purse strings are tight. Here’s how.
3 Ways to Build Wealth When Money is Tight
Pay down debt.
One of the fastest ways to tank your wealth is to hold debt. Not all debt is bad — but high-interest debt is a constant drain on your assets. When money is tight, it’s hard to conceive of paying more than the minimum — but the longer you hold on to that debt balance, the more you’ll owe in the end.
When you’re in the midst of tough financial times, make necessary sacrifices to get your debts under control. Paying down debt can be considered investing in that you are saving yourself the money you would have lost to interest over time. There are two ways to approach your debt-paydown: the debt avalanche (paying off high-interest debts first) and the debt snowball (paying off smaller debts first and building to larger debts one at a time).
There are benefits to both methods, but ultimately: pay down that debt! Not only will it prevent unnecessary losses to interest rates, but you will improve your credit score — something that should be preserved and well-guarded by any investor. Even if you find yourself unable to make big money moves now, getting debts under control will open up opportunities in the future, guaranteed.
Invest in yourself.
Building wealth isn’t purely about money. They say you have to spend money to make money, but that’s not necessarily true! Don’t feel like you’re stuck if you’re unable to make financial commitments to new investments right now — because you can invest in yourself. While that may sound corny, it’s no less true.
Investing in yourself, like paying down debt, is about moving your pieces on the board into an ideal future position. There are a few ways to do this:
- Improve general money management skills — Don’t overlook the basics. Many of us think we have a good grip on our finances until we’re confronted with the truth. Don’t ignore money management fundamentals. Instead, remind yourself of what strategies work best for your family and how you can improve your financial standing through daily habits.
- Improve specific financial skills — While you may not be able to act on your financial goals right now, it’s time to prepare yourself for future money moves. Do you want to pursue a specific type of investment? Dip into real estate? Now is the time to get acquainted with your investment of choice. Not only should you research how to do it, but research the risks, the potential rewards, and start networking. Build up your relationships with other investors. Learn from their successes and failures. Even if you aren’t in the position to invest right now, nothing is stopping you from preparing to hit the ground running in good form.
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Form a game plan.
Goal-setting is a key component of financial success. You might not be able to imagine meeting your big-picture goals right now. That’s okay. What’s important is that you have a plan for meeting those goals over time. Set small, actionable, and achievable goals that improve your financial position. Those goals might be securing an emergency fund or paying off a credit card. It might be increasing your savings each month with a dollar amount in mind at the end of the year. It might be reevaluating your expenses and editing your budget each month.
Regardless of what you choose to do, these short-term goals should work in the service of your long-term plans.
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