Rules for Wealth Building and Amassing Money

Mother teaching daughter about saving and counting coins on a glass tabletop.

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You don't need to earn a six-figure salary to accumulate a good-sized nest egg and build wealth. To ensure a solid financial future, plan ahead and form your spending and savings strategy for each phase of your life. Whether you're a recent college graduate, a mid-life parent getting your kids ready for college, or a senior citizen looking forward to retirement, working to amass wealth now will bring you comfort later.

Clarify Your Relationship With Money

The way in which your parents managed their money during your upbringing has likely influenced your financial management today. If you don't like where your parents were financially at your age, make different, conscious choices for yourself and your family.

Money is nothing more than a piece of paper with the image of a famous person on it. But, when you understand what it represents to you, you gain insight into your spending, saving, and earning habits. If you have always felt that you don't deserve to earn a higher salary, live without debt, or have as much money as "other people," these beliefs can cause you to make poor financial choices that will hold you back.

Get in touch with your true thoughts about money—and break through them—so you can start amassing more wealth.

Realize That Even "Good Debt" Isn't Really Good

With few exceptions, debt can serve as a form of bondage for the borrower, often for years. Visualize your life with the freedom of not owing money on anything. Resist the urge to "keep up with the Joneses" and charge up credit cards for expensive clothes and lavish vacations. Make paying off your existing debt a priority.

Some financial advisors say that borrowing to finance important items such as a home or education is "good debt." The problem, however, is that people tend to choose much more expensive schools and houses when they pay for them with borrowed funds. This overreaching can keep you in debt for years, and cost you thousands of dollars in interest that could have funded your retirement goals.

Buying a home beneath your means allows for extra cash to pay off your mortgage early and load that money into savings and retirement investments.

Choose a Spouse With Compatible Financial Goals

Finding and sticking with the right life partner, especially in the financial sense, can make or break your chances of becoming wealthy. This was one of the key findings of Thomas J. Stanley in his important work, The Millionaire Next Door.

If you plan to have a life partner, it matters that you both work toward the same financial agenda. If you seek early retirement, they help bring in extra income or clip coupons to save more money and take advantage of compounding interest. If your priorities involve a debt-free lifestyle, they support this without secretly shopping behind your back. Talking about finances is one of the most important conversations you can have before committing your lives to one another.

Take Advantage of Retirement Plans

Max out your contributions to retirement accounts each year. Especially if you are young, you have the distinct advantage of time, meaning additional years of compounding interest growth. If you have a 401(k) plan through your employer—especially if the company matches your contributions—pay into it to take advantage of that match. Once you maximize your employer match, you can fund a Roth IRA with annual contributions.

Do not borrow money out of your retirement accounts. You won't be able to contribute more funds until you pay back the loan. You might find it harder to make contributions in future years, plus you'll have missed out on accumulating interest on the borrowed funds. Find alternate ways to cover unexpected medical bills, college expenses, or improvements to your home.

Live Below Your Means

Get comfortable saying "No" to items you cannot afford to pay for with cash. Overspending and getting into debt dramatically impact the funds you'll have available each month to fund your retirement and build wealth.

Buy a home that costs no more than 25% of your monthly net pay. If possible, get a 15-year mortgage at a fixed rate. As you earn more, start making additional payments on your mortgage so that you can pay it off sooner and contribute that money to retirement savings. This way, you'll set yourself up for a well-funded retirement with no mortgage payments.

Fund Your Retirement Before the Kids' College Funds

This may not sit well with a lot of parents, but there's no guarantee your kids will want to attend college. However, there's a high degree of probability that you will retire, assuming you live long enough. If you can't afford to do both, prioritize retirement savings over saving for college.

Consider which will be a greater burden to your children: the costs of college or a shortage in your retirement funds when they are trying to raise their own children?

Draw Social Security as Late as Possible

Instead of retiring and taking social security payments as soon as possible, at 62, delay your social security claim. If you were born before 1955 and wait until the full retirement age of 66, you'll receive 100% of your social security benefit.

If you delay retirement until age 70, you'll receive a bonus, which puts your benefit at 132% of the amount you'd receive each month if you had retired at 66. Don't wait on applying for Medicare though; you'll need to apply by age 65 to avoid possible increased costs.