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8 Steps to Building Personal Wealth

Men stacking coins symbolizing the building of wealth

Is it surprising that self-made millionaires see saving as a stepping stone to wealth? According to, the “average” millionaire saves 20 percent of their income. But it’s more than just saving. Millionaires tend to view money differently from the most Americans, and they stay fiercely rooted in their goals. This outlook impacts how they choose to increase their wealth and spend money.

Steve Siebold, the author of How Rich People Think, tells his readers to focus on the earnings rather than savings. “The middle class sees money through the eyes of emotion. The wealthy see money through the eyes of logic.” He adds that the middle class has loosely defined goals with flexible deadlines. The wealthy have firm goals with “do or die” deadlines. The middle class lives beyond their means. The wealthy live below their means. “Rich people save money, too, but first they focus on boosting their earnings so that the percentage they save will be more meaningful,” adds Siebold. (

Bottom line: to reach your goals requires a game plan.

Step 1: See where you are.

It’s important to know where you stand today. Be honest. And take heart, no matter your age or income, you can always take steps to get to a better place financially. First, calculate your net worth:

Net worth = assets - liabilities

You can also create a personal balance sheet showing your assets and liabilities. Simply calculate the total market value of your assets (house, furniture, car, savings, CDs, investments, 401(k), etc.) and then deduct your liabilities (mortgage, home equity loan, car loans, credit card debt, etc.) Assets you still owe money on can be counted, as will its corresponding loan balance. The final figure will reflect your net worth, and what you set your goals from.

Step 2: Determine where you want to be.

Set incremental goals – first monthly, then annually, and finally, for when you retire. As you accomplish your initial goals, you build confidence. Use that confidence as a motivator and to stay focused.

Goals can include:

  • Saving a targeted amount each month
  • Setting up an emergency fund
  • Paying down debt (most expensive first)
  • Contributing to a 401(k)
  • Investing in the stock market
  • Deciding when you want to retire and a desired lifestyle
  • Determining how much money you need to retire  

Step 3: Create a budget.

As Siebold reminds us, remove the emotion from your financial life. In this instance, view budgeting as a tool to support your goals rather than a necessary evil. Use it to set goals and spending limits for necessities and extras. Let your budget help you to stay organized and committed.

Start by writing down what you spend in a month. List it all – from rent or mortgage payments down to your daily coffee stop. Do you see patterns you wish to emulate or change? Next, separate your budget into categories, such as housing, utilities, food, transportation, insurance, and entertainment. Earmark savings as a category as well. Then, try setting aside ten percent of your take home pay working up to 20. This step will help ensure you pay yourself each month., if your after-tax return on investments is more than your after-tax cost of debt, it is probably better to invest any surplus. (If it costs you more to keep the debt than any potential return on an investment, pay the debt off.) Analyze your situation with this free financial calculator.

Your goal in debt reduction (excluding mortgage payments) is for payments not to exceed 15 to 20 percent of your take-home pay. Some loans are better to pay down, including higher-interest rate debt, credit cards or student loans. If you have several loans but are having trouble reducing debt, you may need something more structured, such as Dave Ramsey’s Debt Snowball Method:

  • Order your debts from the lowest to highest balance.
  • Designate a certain amount of money monthly to pay toward all debt.
  • Pay the minimum payment on all debts except the one with the lowest balance.
  • Pay any extra you have on the debt with the lowest balance.
  • When that debt is gone, do not alter the monthly amount used to pay debts. Instead, reallocate any extra to the debt with the next-lowest balance.  

Step 6: Build your net worth.

Consider other ways to build your worth. Does your employer offer a 401(k)? If yes, take advantage of its maximum potential. Many employers will match a portion of what you save. Contribute at least what your employer will match. Your tax burden will also be less – contributions are before-tax and will reduce your taxable income. Also, review your budget frequently. If you’ve recently paid off a car loan, for example, use those funds towards saving more or investing.

The power of compounding.

Saving is a way to generate wealth. But it’s even more powerful when you’re young since you have the gift of time. You can save longer and factor in the compounding of interest. This enables you, like the wealthy, to focus on earnings rather than how much you can save.

Say you contributed $5,000 a year to a 401(k) for ten years – assume that investment earned eight percent annually, and the earnings reinvested in your account. Compare how much more you can earn the longer your investment has to compound interest:

  • You start saving at age 25 and stop at age 35; when you retire at 65 your account would be worth about $787,000.
  • You start saving at age 35 and stop at age 45; it would be worth about $364,000.
  • You start saving at age 45 and stop at age 55; its value would be only about $170,000.
  • You wait until age 55 and contribute to age 65; you'd only amass about $78,000.

These examples assume you invest $5,000 each year for ten years and then stop. If you were to contribute that amount annually from ages 25 to 65, you would amass more than $1.35 million during those 40 years. These examples do not include consideration of the time value of money, inflation, fluctuation in principal, or taxes.


Step 7: View your choices.

Risk tolerance affects much in life including how you save and invest. Some people, no matter their age or income are risk-adverse; others like to take chances. If you’re in your 20s or 30s, you have a longer timeline to recoup any loss, giving you potentially more freedom to choose a higher-risk mix. As you approach middle age or beyond, you may need to be more conservative. Your 401(k) or other investment plans usually offer choices based on your risk tolerance, ranging from extremely conservative to aggressive.

A balanced portfolio is sensible for most. Liken it to not having all your eggs in one basket. So, if one area is not performing well, you can relax knowing your investment is diversified. Stocks are considered riskier, mutual funds less so, and fixed-interest treasury bonds the most conservative. You may even prefer federally-insured investments, such as CDs at banks or Share Certificates at credit unions, including United.

Being frugal is okay.

The wealthy aren’t afraid to be frugal. And contrary to perception, many don’t put stock in keeping up with the Joneses. Billionaire Warren Buffett, for example, lives in a house he bought in 1957 for $31,500; Ingvar Kamprad of Ikea drives a 10-year-old Volvo; and, Walmart billionaire Jim Walton drives a 15-year-old pickup truck ( Being frugal is really about making thoughtful spending decisions. It can also become a lifelong habit to increase your net worth.

Step 8: Reevaluate.

The best financial plan is fluid and flexible. Review your budget monthly until you’ve established a routine. Make tweaks so the plan is realistic and working for you. Over time, you can review it less frequently, perhaps quarterly or every six months. But always reevaluate when you’ve experienced a life change. Have you gotten a raise or paid down debt? Have you taken on new debt? Have you married or had a child? Adjust your plan accordingly.

Like the wealthy, keep your emotions at bay when making financial decisions. Stay committed to your plan, and feel confident in your steps to building personal wealth.

Thankfully the CFS* Financial Advisors of United Investment Planning are available to help you learn more about building your net worth.  To schedule your no-obligation consultation, please contact United Investment Planning at either (888) 982-1400, or email   You can also stop by your local branch to arrange your complimentary consultation.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor.  Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk, including the possible loss of principal.  Investment Representatives are registered through CFS.  United Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.