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Everyone wants to be rich, but it can seem like a trap if you start with very little or even nothing. You’ve heard the phrase “it takes money to make money” and think you’ll never be able to build richness if you don’t already have some money to work with. But that’s not quite true; there are a few simple steps you can take to build up not-so-negligible wealth over time, even if you don’t have much spare change.
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It’s important to remember that you have to start somewhere – even those who inherited large sums of money had parents or other family members who accumulated wealth somewhere along the line. Although you may feel like you’re behind, don’t compare yourself to others. Instead, focus on what you can control, which is your own financial situation. Once you get started, you may find that it’s not as difficult as you expect, and building wealth can be challenging. Here are some strategies to get you started.
Live below your means
Living below your means is quite simple in concept. If you’re not living below your means, that means you’re spending all (or almost all) of the money you earn. In this case, you will have nothing left to start saving and investing. But living below your means is one way to start getting rich. “That means you have to have more money coming in than going out,” said Brett Sohns, co-founder of LifeGoal Investments.
When you have more money coming in than going out, you can contribute more to your employer-sponsored retirement plan or Roth IRA. These schemes are tax-efficient, which means that in addition to investing, you can also save on taxes.
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Establish a budget and financial plan
This may not be the first time you’ve heard that you should budget, and that’s because it works. When you start budgeting, it can be a process of discovery, as you may not know where your money is going until you see it in front of you. On an ongoing basis, a budget can hold you accountable for using your money the right way.
The reason a budget is so powerful is that it doesn’t just do one thing. “Creating a budget and a financial plan can help you save more money, understand your financial goals, and pay off debt faster,” Sohns says.
A financial plan is the next step; it should contain short and long term goals for everything you want to achieve financially. This can include paying off debt, increasing your income, and investing. The idea is to make the steps challenging but achievable in order to push yourself without setting yourself up for failure. The latter can discourage you and make you abandon your goals, which of course you want to avoid.
Live sparingly
Living frugally goes hand in hand with budgeting, but it’s not quite the same thing. While a budget might lead to saying “no” to that invitation to hang out with friends or something you want to buy on Amazon, living frugally is more about being creative. “Live frugally by buying used items when needed rather than buying new,” Sohns said.
You can also choose to fix something that’s broken or damaged instead of replacing it, or pick up an item from a local Buy Nothing group. As you can see, the point of living frugally is not to deprive yourself of the ability to have something; instead, it’s about finding ways to make these things cheap or even free.
Increase your income
So far, we’ve covered budgeting and living frugally. While these things can be powerful, there’s a limit to what anyone can skimp on and save. At some point, you may find that you need to increase your income, especially if you want to reach your wealth goals faster.
There are many ways to increase your income, whether it’s asking for a raise or finding a new, better-paying job. “Make an effort to network in order to get a new position with a higher salary, or to exceed expectations at work in order to get a raise,” said Kelan Kline, co-founder and CEO of the finance blog Personal The Savvy Couple.
Invest your money
If you want to get rich out of nothing, investing is a must. After increasing your income and reducing your expenses, investing will make your money work for you. Compound interest allows it to grow much faster than just accumulating money in a checking account.
And yet, there is not just one way to invest. Some speculative investments such as gold and especially cryptocurrency have gained momentum in recent years. However, experts with your best interests in mind recommend investing most of your money in proven assets, such as stocks and real estate. “The first step to building wealth is to assess your financial goals, develop a long-term plan, and focus on building a well-balanced portfolio so that all your eggs aren’t in one basket” , said Sachin Jhangiani, co-founder and CMO of Elevate.Money.
Jhangiani emphasizes real estate because it is one of the most effective ways for the wealthy to preserve their wealth and build more of it. “Real estate has many advantages, such as being backed by a real asset and having less volatility than the stock market or cryptocurrencies,” Jhangiani said. He also points out the many benefits of real estate investing in today’s economy. “It also offers the opportunity to earn passive income, the potential for the property to increase in value over time, and it has proven to be a good hedge against inflation, which could be useful in the current environment.”
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