Unlike making the Forbes rich list, building a comfortable level of wealth into one’s life can be accomplished in a fairly systematic manner. The attainment of financial stability is a precursor to financial security, which can then pave the way for the common end goal for most, complete financial independence–meaning that all of your income is being derived from investments or other sources that don’t require your active effort. This is what ultimately needs to be accomplished for retirement. By progressively achieving certain financial milestones, the foundation can be laid for a secure financial future.

1. Avoid Bad Debt: From day one, avoiding any and all debt should be a priority. For most, debt won’t be entirely avoidable in the early stages of life. If and when debts have been incurred, extinguishing them needs to become an urgent priority. You simply cannot afford the headwinds of paying interest to others while trying to secure your own financial footing. One important distinction to be made is between good and bad debt. Consumer debt (credit cards/ auto loan) is the clear bad, and should be avoided at all costs. Investment debt (school loans/mortgages) can be considered good debt. I emphasize “can” because it completely depends on the terms upon which this debt was obtained. Egregious amounts and/or unfavorable terms can easily sour these “investment” loans. If any bad debt has managed to nestle itself into your financial house, it’s imperative to banish it ASAP. Getting your future self ahead financially is unnecessarily difficult when you’re still stuck paying for the consumption of your past.
2. Acquire Knowledge/Skills/Experience: In our early, lower earning years, we might not be saving much and perhaps even going into debt to stay afloat and progress forward. Since younger people simply haven’t had the time to build the skills and experience, it’s common to earn less the younger you are in life or a career. Skills, knowledge and experience are the three things that really fuel our earning potential going forward through life. The downsides of making a low income or even going into debt are lessened IF they are being leveraged into a much more valuable long term outcome. The best part about not having had the time to gain experience is that you likely have a lot of time to gain experience. It’s not so much where you are, but where you are going that ultimately matters.
3. Develop a Savings Habit: Developing the habit of spending less than you earn is the fuel that pushes you forward on your wealth building journey. Just as eating fewer calories than you burn each day snowballs over time into a healthy body weight, spending a little less than you earn eventually builds into a meaningful sum. It doesn’t matter if you’re only saving 5% of your paycheck at first, saving anything will get you into the positive habit that pays off handsomely over time. The more you save, the harder you push on the accelerator towards financial independence. Once you have saved 3-6 months of your living expenses, you will feel more financial secure knowing that life’s inevitable curve balls will no longer immediately derail you. This relieves a great deal of stress and opens up mental capacity for the next stages, thinking about investments and creating your vision. It’s also important to acknowledge and deal with the forces that will work against our saving efforts as we grow and progress through life. Typically, the more we earn, the more we are tempted to spend. Developing the discipline to safeguard you from this destructive lifestyle inflation is an invaluable trait to possess while building wealth through life.
4. Think About Investments: The word “investment” should be used loosely here. Investments can be thought of as anything that requires an outlay of resources to produce a more valuable outcome than would have otherwise been attained. Often times, we’re quick to associate the thought of investments with the stock market or real estate. Those assets certainly have their place in a portfolio, but they should by no means be the default for your investment dollars. Some investments that might have a much greater return are: a professional education, a family vacation, time off work, a backyard remodel, a home gym, a side business, or debt repayment. Once a decent emergency fund has been established and the savings habit is firmly in place, it’s time to start thinking about investing. As the CEO of your life, it’s your job to determine where money should be allocated in order to derive the maximum benefit to your personal situation.
5. Create a Vision: Money is a means to an end–its only value lies in its ability to purchase the outcomes in life that you desire. Once you have enough savings in the bank, and you are making investments to improve the quality of your life, the bigger picture should be more seriously considered. This doesn’t mean that you should expect to have your whole life mapped out. Life is fluid and unpredictable, and the dots rarely connect going forward. Creating a vision is simply thinking about the possible additions (or subtractions) to your life that would collectively create your most ideal state of living. When you begin to realize your desired life through a conscious effort with money, you will begin to experience true wealth.

Progressing through each of these stages of building wealth will put you on a solid track to becoming financially secure, while also setting up the lifestyle that you desire. The best part is the positive compounding effects that these create in your life. The longer the time frame that you can persist in their application, the more powerful the wealth generation in your life will become.