As your income increases, it's tempting to increase your spending too – you'll want to treat yourself to all the things you couldn't afford before you had your six-figure salary, but it's important to take the time to plan and start building your wealth so you don't overspend.
Can silver coins make you a millionaire? Discover the 8 most valuable silver coins
Check it out: Earn an extra $400 a month with this simple hack
What's the best way to build wealth with a six-figure salary?
1. Make a game plan
Before you start looking for the best investment opportunities, it's important to seek advice to ensure you have the right resources on your side. A wealth advisor can help you create a plan to help you make smart decisions with your money. Luckily, most advisors offer a free consultation to help you understand what you're dealing with.
“There are plenty of free matching tools out there that can help you sort through thousands of advisor profiles to find the best wealth manager for your specific needs,” says Diana Howard, financial analyst at CouponBirds. “At the same time, local banks will be happy to offer financial advice and recommend products that might be right for you, free of charge.”You want a plan based on your unique financial goals so you're not investing your money blindly.
2. Maximize your retirement accounts
“It's important to make regular contributions to retirement funds like 401(k)s and IRAs,” Howard said. “Investing $5,000 per year in a Roth IRA, which has an average return of about 10% each year, will leave you with about $250,000 after 20 years. Plus, a Roth IRA is a tax-free savings account.”
You can contribute $6,000 to a Roth IRA if you meet the annual income limits. Once you turn 50, you can contribute an additional $7,000 to your Roth IRA. Either way, your goal is to save enough for retirement so you don't have to keep working. You also want to enjoy a comfortable lifestyle in retirement. Your future self will be grateful for the decisions you make today.
3. Have an emergency fund
While you may want to invest most of your funds to maximize your returns, you should also consider keeping some liquid cash. This is where you save for unexpected expenses like medical bills, car repairs, job loss, etc. Many financial experts recommend setting aside three to six months' worth of living expenses to protect yourself.
This may seem unnecessary if you have a six-figure salary, but remember that there are no guarantees in life. If you lose your job, you'll want to be able to survive for a few months without having to stress about bills. Also, you never know when life will throw the unexpected in the way of a medical emergency or home repairs.
4. Build a diversified investment portfolio
“Investing is the easiest way to make money, but it's also a fairly risky business,” Howard said. “So you need to start by finding the right professional for your situation.” The goal is to build a diversified portfolio that matches your short-term and long-term goals. You could also invest in index funds if you want to play it safe, or work with an advisor who can give you advice.
5. Pay off your debts
If you have debts to pay off, you can't focus on building wealth. It's important to pay off high-interest debts so you have more money to invest in the future. As your salary increases, you'll want to make paying off debt a priority. You can follow the popular debt snowball method to pay off your lowest balances first to get momentum going. If you want to make the mathematically best choice, you can also pay off the debts with the highest interest rates first.
6. Consider an estate plan
“Finally, consider estate planning to provide for your family,” says Howard. “This will ensure that older relatives are taken care of in retirement and that younger relatives are financially prepared. The basic options are wills and trust funds. 529 plans can also help you pay for education expenses from kindergarten through graduate school tax-free, allowing you to be an active participant in your grandchildren's education.” Building wealth is about creating opportunities for yourself and helping those around you. That's why you want to think about the impact on your family.
Conclusion
As your salary increases, you will likely become more serious about building assets for the future. With the right resources and focus on the journey, you can achieve your financial goals. The sooner you start paying off debt and investing, the sooner you will achieve financial freedom.
More from GOBankingRates
This article originally appeared on GOBankingRates.com: 6 Best Ways to Build Wealth with a Six-Figure Salary
