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Investing Simplified: Building Your Wealth Journey Step-by-Step

Ever wonder how you can make your money work harder for you? Or how you can start building wealth? And do it quickly? Maybe you’ve wondered if you’re making the right financial choices, or you’ve been trying to figure out how to build wealth passively.

These questions may make you feel confused, frustrated, or even overwhelmed. Where do you even find answers for all this?

No need to worry. You’re not alone.

Here at Stepwise, we’ve come up with an actionable step-by-step guide that shows you the best ways to save money, invest money, and build wealth. In this guide, we’ll cover everything you need to kick off your personal finance journey.Building Wealth in 6 Steps
Let’s get started with an overview of the 6 steps you can take to build wealth and achieve financial freedom:

Understand your current net worth
Create a plan to save 10-20% of your income
Open the best accounts to save and build wealth
Build an emergency fund in a high-yield online savings account
Start investing your money
Automate everything
Now let’s turn to each step in more detail.

Step 1: Understand your current net worthDo you know how much money you have? Yes? No? Kind of?

At this stage, it’s perfectly normal not to know your net worth. But if you do (and maybe you know your net worth down to the cents), skip to step 2.

To better understand your financial picture, use this simple formula:

Your net worth = assets – liabilities

Assets: Money that you have saved and/or invested
Liabilities: Money that you owe
Make sense so far? Let’s break this down even further. To know your true net worth, create a list of the following:

How much money you have in your bank account (or accounts)
How much you have invested (stock market, cryptocurrency, etc.)
How much debt you may have (credit card balances, student loans, mortgage, car loan, etc).

After you get everything in one place, you can now automate the tracking of your net worth using free personal finance tools available like Personal Capital.

You can also use Mint to automate the tracking of your spending and budgeting (we know Mint used to be terrible, but they recently updated the platform and it’s super helpful now).

Regardless of where you are on your wealth building journey, just remember that knowledge is power. Taking this first step to get a complete picture of your finances in one place is a big accomplishment.

To recap, here are some action items:
Make a list of all of your financial accounts to understand your net worth and personal situation. You can do this by following these steps:

Download and fill out Stepwise’s free net worth template.
Sign up for Personal Capital and link your accounts.
Sign up for Mint and link your accounts.
Step 2: Create a plan to save 10-20% of your income
The more you save, the faster you build wealth. In order to save, you first need to understand what you are spending.

To do this, we recommend you track your expenses and build a budget. Before you freak out, we can help with that.

To make planning simple, we recommend using a budgeting template to understand how much you are spending and saving each month. You can download Stepwise’s monthly plan and budget template and use this for free.

After you update your plan, you can easily identify what you are spending money on and see how much you can save each month.

Overall, it is recommended that you save at least 10-20% of your paycheck each month.
However, if that is too much for you, the most important thing is to save something so that you are at least getting started. This can be as little as $5-$20 a month (this is where we started, too, back in 2011). Even if this seems small, it will add up over the course of a year.
Step 3: Open the best accounts to save and build wealth
You often hear people say: “make your money work for you.”

When it comes to saving and investing money, it’s all about picking the right accounts, which will make your personal finances much simpler and help lead you to financial independence.

These accounts will both save you money by avoiding unnecessary fees AND help you earn more money from higher interest.

What makes for a good savings and investment account?

It is free or very low cost to open
It does not charge transaction, account balance, or other fees
It is easy to use and link or integrate with your other accounts
Fees can add up over time. A 2014 study by the Consumer Financial Protection Bureau (CFPB) found that checking accounts have an average annual cost of $97.80 in fees. In 10 years, the average cost is $978, and in 20 years it’s $1,956.

Another study by the CFPB found that banks reached an estimated $15.47 billion in overdraft and non-sufficient funds fees in 2019.
Checking Account

A good checking account should enable you to use ATMs anywhere and not charge you any fees
Good options are Charles Schwab and Capital One 360 Checking
High-Yield Online Savings Account

A good high-yield online savings account should have no fees and no or very low account balance requirements
When the Federal Reserve Bank raises interest rates, high-yield savings account rates can be further raised to stay competitive and attract depositors
Good options are Synchrony Bank and Marcus by Goldman Sachs
Investment Accounts (IRA, 401(k), and Brokerage)

A good investment account should not charge additional fees to purchase index funds and ETFs
For an IRA and brokerage account, you can sign up for them yourself
For a 401(k), see if you can sign up for one through your employer.
Good investment accounts are Betterment, Wealthfront, and Vanguard

If you want to set up your checking, high-yield savings, IRA, and brokerage accounts all in one place, a good option is Betterment
If you’re interested in learning more about the types of accounts you should consider, here is a list of savings and investment accounts to help you on your journey to build wealth. The accounts described are Stepwise’s recommendations, but an account with very similar characteristics from any other financial institution is usually fine if that’s what you prefer.
Step 4: Build an emergency fund in a high-yield online savings accounts
Now that you’ve laid the foundation and have the right accounts, you can start building wealth.

Your first goal? Build an emergency fund that will cover 6 months of living expenses.

What is an emergency fund?

An emergency fund is money you’ve set aside for an unexpected event, like a job loss or an economic downturn. If an unforeseen expense pops up and you don’t have an emergency fund, it might force you to go into debt.

If you don’t go into debt, it could force you to sell any investments you have to cover the cost. This often results in fees, taxes, and lost future earnings (especially if you sell investments from your retirement account). In other words, having an emergency fund helps prevent worst-case scenarios.

Remember that thing we said about making your money work for you? Store your emergency fund in a high-yield online savings account instead of your standard checking account (which only gets you 0.04% interest on average). This will help you earn more money over time compared to your checking account since high-yield savings accounts have a higher interest rate.

The term “interest rate” is used a lot in the finance world. Let’s break it down:

When it refers to your checking and savings accounts, a higher interest rate is better, because you earn more.
When it refers to the interest you pay on loans, credit cards, or debt, higher is worse because you pay more over time.
High-yield online savings accounts are also a good place to save cash for medium-term goals (~5 years), including:

Making a down payment for a home
Buying a car
Paying your taxes
Saving for a wedding
We recommend you sign up with Synchrony Bank or Marcus by Goldman Sachs. They’re FDIC insured AND can offer up to 4 times the national average interest rates (this is largely because they’re online-only, so they don’t spend your money on physical bank locations).
Step 5: Start investing your money
Often the hardest thing about investing is figuring out where to start.

Depending on your risk profile and how your parents raised you, investing can feel either really scary or natural to you. With so much contradicting advice online, it’s important to stay grounded. Despite what many people think, you don’t need to pay a financial advisor exorbitant fees – in fact, we don’t recommend this.

If you follow our simple process, you’ll learn the same step-by-step tactics the top 1% uses to build wealth responsibly.

First, start with retirement planning: max out your retirement accounts (IRA and 401(k)) to benefit from tax-advantaged investing.
Not all investment accounts are created equal. For instance, did you know that retirement accounts have tax advantages? The most common retirement accounts are a 401(k) or IRA (Roth IRA or Traditional). For this reason, your first investments should go into one of these two accounts.

If your employer offers a matching program with your 401(k) option, you should use this account first. Why? Because “matching” is code for free money. It’s like earning passive income.

If you don’t have a matching program with your 401(k), then we recommend using your IRA account first because they tend to have better investment options.

Now, the question is which type of account: Roth or Traditional?

While there are many differences, generally speaking, Roth is the best choice for building wealth and accessing your money. Two big benefits of Roth accounts are that you don’t pay taxes when you take money out and you can access the money you contributed before you retire, if needed.

Second, invest any extra money in your brokerage account.
Contribute to your brokerage account(s) last.

A brokerage account is an investment account that allows you to buy and sell a variety of investments, such as stocks, bonds, mutual funds, and exchange traded funds (ETFs).

You might have heard of the following ones: Public, E-Trade, Robinhood, Fidelity, or Vanguard. Although brokerage accounts get a lot of press and attention, they are actually the last step in the investment process. Why? Because these accounts don’t offer any special tax advantages.

You shouldn’t worry about brokerage account investments until you are already maxing out your annual retirement accounts, IRA, and 401(k) contributions.
Step 6: Automate your saving and investing each month
Now to the final step of building wealth, which is essentially making your money work for you…on autopilot.

Beating your own behavioral biases is crucial when it comes to investing and wealth building. This is why we recommend you automate your saving and investing.

Why is automation so important?

It helps you invest consistently every month, aka dollar-cost averaging
It prevents you from trying to time the market (which does not work)
It removes human error from the process and enables you to focus on more important things like seeing friends, riding your bike, traveling, or spending time with your family
How can you get started? Here are a few ways to automate your financial life:

Set up direct deposit for your paychecks
Set up automatic bill pay for your credit cards and rent
Set up automatic transfers from your bank account to your savings account
Set up automatic transfers from your bank account to your investment accounts (IRA and Brokerage) every month
Have your employer set up automatic contributions to your 401(k)
Take small beginnings seriously. As little as $25 is a great start. Once you have everything set up and running smoothly with the right amounts, it is a wonderful feeling to go live your life and not spend hours checking your accounts each month. And before you know it, you’ll be meeting your financial goals.



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