4 Surprising Ways to Build Wealth

You likely already know the standard advice about building wealth: Live below your means. Max out your retirement accounts. Pay off your debt. But in addition to those tried-and-true methods, there are other, less well-known ways that can help you grow your net worth faster. Here are four: 

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1. Use a Health Savings Account. These accounts, which are paired with high-deductible health insurance plans, offer a rare triple tax break — your contributions are deductible, your money grows tax-deferred and withdrawals for medical expenses are tax free. HSAs typically allow contributions to be invested in stocks and other investments for long-term growth, and any unused money can be rolled over year after year.

HSAs, in other words, can be used to supercharge your retirement savings. Some advisors recommend their clients funnel savings into HSAs after they’ve contributed enough to their workplace retirement plans to get the full match. Other advisors suggest HSAs as an additional way to save for retirement after workplace plans and IRAs are maxed out.

2. Buy a modest house in a modest neighborhood. The old-school advice was to stretch to buy a home in the best neighborhood you could afford to maximize your potential appreciation. The problem, as we’ve learned, is that appreciation isn’t guaranteed and historically hasn’t been that impressive. 

Yale University economist Robert Shiller, who helped create the widely used Case-Shiller Index to track home prices, found that long-term returns on residential real estate barely keep pace with inflation. Once you factor in maintenance, updates, repairs, insurance and taxes, you may well be losing value rather than gaining it. Paying down a mortgage does force homeowners to build equity, but that will happen even with a smaller home that you can better afford.

Capping your housing payments at 25 percent of your income, rather than the 33 percent or more some lenders will approve, should leave you with enough money to save for retirement and pursue other financial goals. Also, research shows living in a more expensive neighborhood will actually cause you to spend more in other areas of your life too, says Thomas Stanley, author of the book “Stop Acting Rich” and co-author of “Millionaire Next Door.” Rather than being an “aspirational” resident — one who’s less wealthy than your neighbors and feeling pressure to “keep up with the Joneses” — people who want to build wealth should live in neighborhoods where their net worth is higher than average so they don’t feel those pressures, Stanley says.

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