Building wealth might seem overwhelming, but it’s achievable for anyone willing to adopt a few simple, actionable habits. By consistently applying these habits, you can pave the way to financial success and long-term security.
This blog addresses critical questions, providing insights to help you shift your mindset and take meaningful steps toward achieving financial freedom. Let’s explore the five habits that create lasting financial growth.
What small habits create lasting financial growth?
Five foundational habits can lay the path to lasting financial growth. Among countless ways to build wealth, these five simple yet powerful habits rise to the top:
- Paying off debt
- Automating savings and investments
- Budgeting effectively
- Building an emergency fund
- Cooking at home
In this blog, we’ll take a deep dive into each habit, explaining how it contributes to growing your wealth and setting you on the path to financial success.
1. How can Paying off Debt Accelerate my Net Worth?
Paying off debt is a cornerstone of wealth-building. Your net worth is calculated as your total assets minus liabilities. Reducing liabilities through debt repayment directly improves your financial health.
Good Debt vs. Bad Debt
- Good debt: A mortgage on an appreciating asset, like a home, can increase your net worth over time as property values rise.
- Bad debt: High-interest debt on depreciating assets, such as credit cards or car loans, depletes your wealth through ongoing interest and loss in value.
Why Prioritise Debt Repayment?
Paying off high-interest debt offers a guaranteed return on investment. For example:
- A credit card with a 20% annual interest rate means paying off that debt is equivalent to earning a risk-free 20% return—far higher than most investments.
Make debt repayment a priority to enjoy financial certainty and faster progress toward your goals.
2. How can Automating Savings and Investments Supercharge your Net Worth?
Automating your savings and investments supercharges your net worth because it ensures consistency and discipline in your financial journey. Without automation, it’s very easy to look at that money in the bank and think, “This is all mine to spend.”
On the other hand, automated savings and investments work irrespective of how you feel; the system just does what needs to be done. Automation eliminates the need to make any decision; therefore, it removes the hesitation and ensures your financial goals are always given precedence. It’s a powerful tool to create long-term wealth.
How Automation Works
- Set it and forget it: Automatically transfer a portion of your income into savings or investment accounts.
- Round-up tools: Apps like Monzo round up spare change and deposit it into a savings pot.
Why Automation Matters
By automating, you reduce the likelihood of overspending and create a buffer for unexpected expenses. Over time, even small contributions can snowball into substantial wealth.
Without investments, you will never build wealth. Assets are a necessary component of wealth-building – inflation will eat away at the value of your cash but will benefit good quality assets such as stocks, property, and some commodities. Although I appreciate the innovation of companies such as Acorns, I think you need to be aware of how much these services can charge in fees.
I’ve recently changed my investment account from Hargreaves Lansdowne to Trading 2-1-2, which gives me the option to transfer weekly, monthly or even daily into an investment pie I’ve created:
For example, Monzo Bank offers an excellent feature that rounds up your purchases to the nearest pound and saves the difference. It’s an effortless way to build your savings over time without even noticing.
Use my Monzo referral link and we both get £5:
3. How can Budgeting Effectively Help You in Your Wealth-Building Journey?
Building a budget is an important first step in building wealth.
Understanding your money is the foundation of any strategy for building wealth. That means knowing to the last cent how much you make, where it goes, and how it grows. Otherwise, one can never know where they need to improve, which goals to prioritise, and what steps toward financial growth they should take.
Through this analysis of your income, expenses, and savings pattern, you would identify worthless spending, hidden opportunities, and informed decision-making. In essence, the understanding empowers you to allocate resources sensibly, set realistic goals, and provide a plan leading towards long-term objectives. Simply put, understanding money is the most vital beginning for taking charge of your financial future.
How Budgeting Helps
- Identifies unnecessary expenses.
- Creates space for prioritized savings and investments.
- Empowers informed decision-making.
If you want to build a budget, try my free budgeting tool to help you out.
4. How can Building an Emergency Fund Limit your Risk?
Building an emergency fund can provide you with the security to proceed with investments.
Why build wealth in the first place?
Arguably, it is for you to reduce your risk. Wealth lets you weather the storm if your working income is cut off.
An emergency fund allows you to keep yourself invested, as you will not need to cash out your investments if any unexpected bills come due. For instance, if you need to fix your vehicle, repair your roof, or lose your job. An emergency fund should vary in size according to your expenses, so it is crucial to create a budget to understand your requirements.
Steps to Build an Emergency Fund
- Start with a goal of £1,000 to cover immediate needs.
- Gradually aim for 3–6 months of living expenses.
- Adjust based on your income, dependents, and lifestyle.
As this blog post addresses tiny habits, your first step should be to save 1000 pounds or dollars as an emergency fund. This starter emergency fund will cover you for a lot of small emergency expenses. Then you should aim for one, three and then six months of expenses. The reason why most financial experts recommend 3 to 6 months is that it takes around 3 to 6 months on average to find new employment.
5. How can Cooking at Home Build my Wealth?
Cooking at home can seriously reduce your monthly spending. I know this anecdotally – eating out is one of my worst habits.
Aside from the nutritional benefits that can result from eating home-cooked meals and the power that comes with knowing what you are putting into your body, you get to keep more of your money.
Perhaps worse of all, people who spend money on takeaways do not even get the experience of eating out. In the UK, according to NinjaKitchen, Brits spend on average £1,758 on takeaways each year.
Speaking personally, I’ve worked out that I spend around £250 per month eating out and having coffee. If I invested £250 per month in the market at a return of 8% per year for 30 years, I would have contributed £90,000 and made an investment return of £282,589. Just thinking about that makes me consider my spending more carefully.
Final Thoughts: Small Changes Lead to Big Results
Building wealth doesn’t require drastic changes—it’s the small, consistent habits that make a big difference. By paying off debt, automating savings, budgeting effectively, building an emergency fund, and cooking at home, you can take control of your financial future.
Start with one habit today, and watch your financial health improve over time.
FAQs
1. How much should I save monthly to build wealth?
Aim to save at least 20% of your income, allocating 50% to needs, 30% to wants, and the remaining 20% to savings or debt repayment.
2. What’s the best way to get out of high-interest debt?
Focus on the debt snowball method (smallest to largest balance) or the avalanche method (highest to lowest interest rate) for faster repayment.
3. Should I invest while paying off debt?
Pay off high-interest debt first, but you can start small investments if your debt has low interest rates and manageable repayments.
4. How large should my emergency fund be?
Ideally, it should cover 3–6 months of living expenses, adjusted to your income and family size.
5. Can I automate investments on a budget?
Yes, apps like Trading 212 and Acorns allow small, regular investments to grow wealth over time.
