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Building wealth

By Morgan Jackson and Alexandra Venegas

Building wealth will help you accomplish your financial goals. The information provided below is based on things you probably have heard many times—financial literacy, tracking your spending, and financial goal-setting.

Learn the Language

  • What is your definition of wealth? Some people define wealth based on the house they live in or the car they drive. However, we are focused on financial wealth. In simple terms, wealth means being financially free so that you can do what you love. In order to become wealthy you need a budget.
  • What is a budget?A budget is a plan to make your dreams come true. A budget is an outline of the amount you wish to spend over a limited period of time. A budget is the way to accomplish your financial goals.

The first step to building wealth is learning the language of wealth creation. This includes understanding the meaning of assets,liabilities,and net worth. Together, they make up this formula:

Assets—Liabilities = Net Worth

  • Assets are possessions that generally increase in value or provide a return. Examples include a savings account and a home. Possessions, like your car, clothes, and furniture, are assets, but they aren’t wealth-creating assets because they do not earn money or rise in value.
  • Liabilities are money that you owe, also called debt. Some examples of liabilities are credit card balances, car loan, and student loans.
  • Net Worth is the difference between your assets (what you own) and your liabilities (what you owe). Your wealth is your net worth.

Budget to Save

What would you like your net worth to be in the future? In order to build your net worth, or wealth, you must set both short-term and long-term financial goals. Here are a few tips to consider when setting financial goals for yourself:

  • Be realistic
  • Establish time frames
  • Devise a plan but be flexible, as goals can change.

Are you “doing” or “just wishing” when it comes to reaching your financial goals? Don’t just develop a budget—live by it! Put action to your goals.

Track your expenses

What kind of spender you are?

  • Minimalist – Less is more. You spend only for basic necessities such as food, clothing, shelter, and other bills.
  • Consumer – More is more. You shop for fun and want the latest electronics.
  • Investor – Spend to make more. You invest in stocks and bonds, a small business, or your education.

Everyone has strengths and weaknesses when it comes to money. Some of us can’t resist a bargain, while others easily say no to the latest phone, food item, or outfit. Finding a balance between indulging and spending responsibly isn’t easy. But knowing what kind of spender you are can help you make better financial decisions. The best way to become a better spender is to track your expenses.

Here are a few simple ways to track your spending:  

  • Set up a spending log with various categories and record all transactions for goods or services
  • As you spend cash, record each transaction in the log
  • If you have difficulty remembering how much you have spent, use an envelope to keep receipts. If you make a purchase that does not provide a receipt, write it on a piece of paper and put it inside the envelope.
  • On days you do not incur expenses, write “none” and put a zero in the amount column.

Financial Goal Setting

The best way to build wealth is by setting SMARTgoals. Your goals should be specific, measurable, attainable, reasonable, and timely. Remember to be realistic, establish time frames, devise a plan, and be flexible with your goals, because they can change.

Separate your goals by time:

  • Short-term–goals that can be achieved in less than one year
  • Intermediate–goals that can be achieved within one to five years
  • Long-term–goals that will take more than five years to achieve

Setting goals helps you visualize the gap between where you are and where you want to be. Ask yourself, “What am I trying to accomplish financially?”

Here are some other questions you should ask yourself when you are setting goals:

  • What is my goal? 
  • What is the target date for reaching my goal?
  • What is the estimated cost?
  • Can I cut back on current spending in order to put more toward my goal?
  • Can I increase income to put money toward my goal?
  • How much money do I need to save monthly?

When it comes to financial literacy, we must educate ourselves and realize that it is not an overnight process. If you simply learn the language, create a budget, track your expenses, and create SMART financial goals, then your financial future will be off to a great start. Put your goals to action scholars!

Many thanks to Susan Kizer, Economic Education Coordinator,Federal Reserve Bank of Dallas, for her seminar on “Building Wealth: A Beginner’s Guide to Securing Your Financial Future,” which was presented to HISD students in on June 20, 2019.