BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

These Decisions Can Be Game Changers For Building Wealth

This article is more than 7 years old.

Back in 2008, I got an advance for a book I co-authored, and, before I could even be tempted to spend it, I put almost all of it into the stock market.

The decision wasn’t an easy one at the time. My husband and I had an 18-month-old son and were anxious to move into a rental with a second bedroom—and had plenty of other ideas, too, on how we could spend that money. And it took a lot of willpower not to pull it out as stock prices continued to fall for months. But then, the market turned.

In the eight years since, the value of that portfolio—a diverse mix of individual stocks and index and exchange-traded funds—has grown by more than 50 percent. The gains I made in the market helped us pay for our home a few years ago, which has now increased nearly 50 percent in value itself.

It also catapulted us from just doing okay financially to, ultimately, being in a position to afford to have a second child and raise both boys in a home we love in Brooklyn. In other words, it helped us start building enough wealth to afford the life that we want.

Of course, I was fortunate to get a book deal and to invest the advance in the market just before the start of what’s now the second-longest bull market in history, and our timing on the condo purchase was fortuitous as the housing market was just starting to recover.

But you don’t need lucky timing or a book advance or a major salary bump to enjoy a similar game-changing effect. We make good, and bad, decisions every day with our money. But some can have a more profound impact than others. Simple choices—like investing some extra income instead of spending it, buying instead of renting and getting (and responsibly using) credit—can help you make big gains toward building wealth.

Certified Financial Planner Stacy Francis, CEO of Francis Financial in New York, credits saving all of her raises as one of the best financial decisions she’s ever made. “Every time I’ve gotten one, I calculate the after-tax amount by which my paycheck will increase. I then have that amount automatically transferred to my savings.”

That choice is a relatively painless way to continuously up your retirement or investment contributions, and multiply the size of your nest egg over time, without having much impact on your lifestyle.

Financial advisors generally recommend aiming to contribute 10 to 15 percent of your annual salary to a tax-advantaged retirement account like a 401(k) or IRA, for example, but you could start at 5 percent—enough to take advantage of an employer match—and then commit to increasing your contributions a percent or 2 a year, as you get raises or cost-of-living increases. Thanks to compounding, those consistent incremental increases can have an exponential effect on the amount of wealth you'll have waiting for you as you approach retirement.

Buying property instead of perpetually renting can have a similar catapulting effect, if you choose properties and neighborhoods that are likely to increase in value and don’t get in over your head financially.

Arindam Nag, co-founder and CEO of CentSai and a longtime financial journalist, says his best financial decision was to purchase his first apartment years ago in London. “I still own it, and the rental income covers more than the mortgage now,” says Nag.

He also refinanced it in 2004, and used some of the equity to finance his MBA when he went back to school, which helped boost his earnings potential.

Kyle Taylor, founder of The PennyHoarder, says his decision to get a credit card early on, and start building his credit, has netted similar game-changing benefits over the years—even helping him to grow his successful business. “Now, at 29, I have my own house [and] car, and I’ve been able to open credit lines to support my business. These are all things that wouldn’t have happened if I never paid attention to my credit.”

But perhaps the best example I’ve heard of how game-changing one good financial decision can be came from Certified Financial Planner Michael Kitces, co-founder of the XY Planning Network, and publisher of the financial planning industry blog Nerd’s Eye View.

He chose to split an apartment with two friends for most of his 20s—even well after he could afford to live on his own. Living with a couple good friends may not seem like much of a concession, but splitting the rent three ways went a long way toward helping him save money. By my late 20s, my rent was barely 5 percent of my income. That, combined with the fact that I owned a very inexpensive used car with no debt, allowed me to save aggressively,” says Kitces.

That, ultimately, gave him the financial stability to leave his day job and become an entrepreneur, which has paid off in many ways.

“I had the cash cushion if things didn’t go well,” says Kitces. “But, as it turned out, they did go well, which meant that savings ended up being used to help pay for our wedding, and then as the down payment for a home we love, in which we’re now raising a family.”