One of the difficulties associated with getting ahead when it comes to your personal finances is the fact that it can be hard to know where to start. Building wealth for the future is a daunting task.
The good news is that it doesn't have to be as hard as you think. With the right tools in your financial toolbox, you can build wealth for the future, starting right now. Here are 5 tools that I use to help me stay on top of my finances and help me build wealth:
1. Wealth Calculator from Stocks for the Week
If you want to understand the importance of investing rather than relying entirely on your savings, the Wealth Calculator from Stocks for the Week can be a great help. This calculator compares how much you can expect to earn, over a set period of time, if you keep all of your money in savings, invest it all, or put half in savings and invest half.
This is an eye-opening calculator that provides you with some context. We like to think that keeping our money in savings the "safe" play, but the reality is that "safe" investments like cash products aren't going to help you effectively build wealth over time.
Play around with the Wealth Calculator, and you'll get a handle on what you really need to do in order to build wealth.
2. Credit Card Minimum Payment Calculator from Financial Mentor
The Credit Card Minimum Payment Calculator is another eye-opening tool for your quest to build wealth.
First of all, this calculator encourages you to take a look at how much you owe, and figure out how long it will take you to get out of debt if you only pay the minimum payment, as well as the total interest you will pay. It's true that you can find this information on your credit card statements, thanks to the Credit CARD Act. However, the calculator at Financial Mentor takes things a step further. You find out how much you will forego in returns if you had been able to invest the money, instead of pay interest.
When you see the total estimated opportunity cost of paying only the minimum payment on your debt, you will be encouraged to make greater efforts to pay down your debt quickly so you can get on with the business of building wealth.
3. Personal Finance Software
One of the best things you can do in your quest to build wealth is to use personal finance software to help you. I use Moneydance for my own personal finance tracking. However, I know that other popular options are Mint, YNAB, and Personal Capital.
The important thing is to use personal finance software to help you keep track of your income and your expenses. It's difficult to build wealth if you have no idea where you stand right now. If you want a solid personal finance experience, you need to have software that helps you track where your money is going, and be able to plan for the future.
Consider your personal style, and then choose personal finance software that works with your own preferences. I like Moneydance because it looks like an old-school ledger, but allows me bill reminders and automatic entries. I know a lot of others who like Mint for its painless tracking and analysis, while others prefer YNAB because it forces you to plan ahead and give every dollar a job. When you're ready to take control, good personal finance software is key.
One of my favorite new wealth building tools is Digit.co. This is an app that analyzes your checking account, paying attention to your income and spending habits. Then, using an algorithm to determine your habits, it identifies how much money you can afford to save. Every so often, your money is withdrawn from your checking and put into an account. Whether it's $5 or $50, the withdrawal is based on your habits. After using this service for a few weeks, I can say that I like the way it helps me maximize my savings.
The downside to Digit is that you don't earn interest on the money that is moved into your account. However, I make it a point to withdraw my automatic savings regularly and then add it to one of my investment accounts. That way, I'm still getting a benefit, and building wealth a little bit faster. Digit is a great way to identify "extra" money that you didn't realize you could put to good use.
5. Robo Advisors and Small Investment Accounts
Finally, there are a number of tools that can help you invest better. I use Betterment for my retirement investing. Every month, a set month is automatically withdrawn from my checking account and invested. My portfolio is automatically rebalanced as well. It requires very little thought on my end, but it allows me to build wealth over the long haul.
There are other similar services available as well. Future Advisor is another robo advisor gaining in popularity. Smaller sites, like Acorns, also provide you with the ability to invest automatically, even if you have a very small amount of money. Many of these investing services come with relatively low fees, so your costs aren't prohibitive.
One of the best ways to build wealth over time is to invest, and there are a number of tools available to help you get started, no matter how small your investing budget is.
Take the time to use these tools, and you can create a practical plan that will help you find more money in your budget and put it to use for a more successful financial future.
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