How do you define wealth? Perhaps you consider wealth as having a certain amount of cash in savings, or investments that have reached a particular value.
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What it means to be wealthy can differ wildly, but there’s a Fidelity study that explored the definition of wealth and steps to financial success. The survey reveals some surprising insights, and GOBankingRates spoke with financial experts about steps you can take to build wealth and financial security.
According to the Fidelity Investments State of Wealth Mobility study, most Americans have a relatively modest definition of what it means to be wealthy. The majority (71%) of survey respondents define wealthy as not having to live paycheck to paycheck.
Other criteria followed closely behind. Being able to travel and take vacations was the second most popular criteria (57%), and 56% of respondents defined wealth as being able to pass on an inheritance. Just under half of respondents (49%) identified being wealthy as being able to own a home, while 41% associated being wealthy with being able to give back to charities.
Results were similar among high net worth Americans, but 65% of those with a high net worth identified being wealthy with being able to travel and take vacations. Among this group of respondents, not having to live paycheck to paycheck was the second most popular definition (54%).
If you don’t consider yourself wealthy, you aren’t alone. According to the survey, 89% of Americans don’t consider themselves wealthy, but 70% of respondents were hopeful that the next generation will achieve greater wealth than they have today.
Though you might not currently feel wealthy, there are several effective ways you can build wealth and financial stability.
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You might agree with the definitions of wealthy above, but you might identify with other milestones too. Jordan Mangaliman, financial advisor and owner of Goldline Financial Services, explained that his clients have set goals like becoming debt-free, paying off their mortgage, helping their kids pay for college and attaining financial freedom.
“A great definition of financial freedom is having your assets pay for your lifestyle so that working becomes an option and not a necessity,” he said.
Jenny Groberg, founder and CEO of BookSmarts Accounting and Bookkeeping, cautioned against correlating being wealthy with having nicer, more expensive things. As people make more, they tend to spend more. For example, if you get a pay raise, you might be tempted to spend it on a car, more expensive clothing, nicer vacations and other items.
“Many people can go on nice vacations or have a very nice home but might be buried in debt,” Groberg said. “Just because a person doesn’t live paycheck to paycheck doesn’t mean they are wealthy. Nicer things and higher pay also do not equal wealth.”
Instead, Groberg defined wealth as having a savings account that allows her to cover emergencies, being able to pay for groceries, donating to charity, contributing to retirement and paying for her mortgage. She also defined wealth as not having car payments or credit card debt that drain her extra cash.
Take some time to create your own definition of wealth, as well as your goals for your financial security.
According to Groberg, the best way to start building wealth is to pay yourself first when you get a paycheck.
“If you can get in the habit of saving 20% to 30% of everything earned, that’s the best way to establish good habits that will lead to sustained wealth,” she explained.
Groberg also highlighted the importance of staying out of debt if you want to build wealth. Avoid credit card debt, car loans or leases that you can’t afford and home purchases that are at the top of your budget.
“The more you can minimize your expenses, the greater chance you have of freeing up your income for savings,” she said.
Creating a budget is key to build wealth, and your budget will guide your financial choices.
“When you know your numbers, you understand what your income is and what your expenses are,” Mangaliman explained. “By understanding your cash flow picture, you can then start to cut out unexpected expenses and subscriptions.”
There are many free apps and programs that you can use to create and maintain a budget. Apps like Goodbudget and Ramsey Solutions’ EveryDollar can help you monitor your income, expenses and spending.
Investing can be a powerful way to build wealth long term, but it’s important to invest strategically. “Ask the wealthiest person you know for a recommendation on a financial planner,” Groberg said.
She also recommended investing in a 401(k) or retirement plan as soon as possible, since investing is a long-term strategy. “Avoid anything that is a quick return or ‘all or nothing,’” she said. “Wealth is built day by day, year by year, and any other strategy is unsustainable.”
While investing in retirement funds can help build wealth, investing in yourself can pay off long term too.
“The first step to building wealth is to educate yourself and learn about personal finance, investing and money management,” Mangaliman said. “There are plenty of books, online courses and resources available to help you understand the basics of foundational finance.”
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This article originally appeared on GOBankingRates.com: How Americans Define Wealthy, According to Fidelity Survey
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