Through a combination of paying off debt, budgeting, investing, and increasing your income, you can advance your chances of becoming rich and hitting your financial goals. In fact, the average age of millionaires is 57, suggesting that many successful people build wealth over time from diligent habits and financial savviness (especially if you don’t come from a wealthy family).
Let’s take a closer look at how to become rich and explore the steps that may set you up for future financial wellness.
How to become rich in 7 steps
Self-made wealthy people don’t become rich by accident. Instead, they often take intentional actions to make money and build wealth. If you’re ready to take control of your finances, choosing and committing to a step-by-step plan often helps increase your wealth.
1. Identify your goals
Before you get started on becoming rich, devise a financial plan. Here are a few questions you may ask yourself as you put your plan together:
What does being rich mean? Is there a particular net worth I’d like to hit?
What is my monthly budget goal? Am I looking to put money aside to invest or to pay off debt?
Am I looking to achieve early retirement?
Get specific with your answers so you know your exact goals. Once you have your big-picture vision established, break it down into smaller short-term goals that are easier to achieve. By creating this roadmap, you should have a clearer sense of what your destination is and how to get there.
2. End your high-interest debt
Nothing drags down your hard work like high-interest debt. Total consumer debt balances increased 5.4% between 2020 and 2021, according to Experian, one of the three national credit bureaus.
Debt with high interest rates, such as credit card debt, can be challenging to pay back. Not only are you paying the principal amount you borrowed, but you’re often paying hefty interest charges as well.
To take control of your debt, start by listing all your loans from highest interest rate to lowest. Consider making extra payments toward the original loan amount on your high-interest debts first to minimize the total amount of interest you might owe by the time the debt is paid off. You'll likely need to specify that the extra payment is for the original loan amount — ask your lender if there is a certain process you should follow when using this strategy.
Once you’ve paid off that first debt in full, move on to the loan with the second highest interest rate. You’re spending less money on interest charges and keeping more money in your pocket by targeting high-rate debts.
3. Start budgeting and saving money
To pay off debt and hit your financial goals, it’s important to learn how to manage your money. Follow these steps to implement a basic budgeting plan:
Identify costs: Write down your income streams and expenses and calculate how much you make or spend on average for each item on your list.
Keep track of major spending categories: Examine how much you spend each month on categories such as rent, utilities, and groceries. Don’t forget to also account for discretionary spending, such as eating out or buying a new book.
Look for areas to improve: Once you have a bird’s-eye view of your monthly cash flow, find places where you can cut back to save extra money.
Maybe you can cook at home more often than eating out at restaurants. Or perhaps there are free activities you can do in your area to spend less on entertainment. Use the savings you make to build an emergency fund, grow a nest egg, pay down debt, or even invest.
4. Pay yourself first
Without enough money for emergencies, you risk getting into a tough financial spot if an unexpected expense arises. If you don’t have cash on hand, you may charge the expense to your credit card or take out a loan, further impacting your finances by increasing your debt.
To bolster your savings, make sure to pay yourself first. This means setting aside a portion of your monthly paycheck to put into a savings account, so you don’t spend it elsewhere.
You may even automate this process so that it’s done before the money becomes available to spend. You could set up an automatic transfer from your checking account to a savings account. If your employer uses direct deposit for your paycheck, you may choose to split the deposit, with a portion of your paycheck going directly into a savings account and the remainder in your checking account.
The best savings accounts often enable you to earn interest on your balance that is several times higher than the national average, allowing you to earn passive income and grow your money faster.
5. Start investing as soon as possible
Investing your money is often one of the best ways to build wealth over time, assuming that your investments are successful. If you keep all of your money in a basic bank account, you risk devaluing your cash due to inflation. Investments are often a smarter way to save.
For example, let’s say you invest $1,000 per month starting at age 30. With a 7% rate of return, you’d have over $170,000 after 10 years, $500,000 after 20 years, and $1.15 million after 30 years. The earlier you invest, the more time you have to earn compound interest.
There are two main account categories for investing money in the stock market:
You can use one of the best brokerage accounts such as Stash, Betterment, or SoFi. Legendary investor Warren Buffett recommends beginning with a diversified portfolio by including ETFs that track major stock market indexes, such as the S&P; 500.
If you contribute to a 401(k) plan, take advantage of any employer match benefits on a portion of your contributions. The matched amount represents an immediate 100% return on your investment, so it’s worth maxing it out whenever possible.
You can also cherry-pick stocks, bonds, and other investment vehicles, although this may increase your risk and impact your investment strategy.
Investing always entails some risk, but if you invest for the long-term, you may be able to weather the ups and downs of the market and still come out on top.
6. Increase your income
There’s only so much money you can save with the income you have. If you want to accelerate your debt payoff and increase your investment contributions, look for ways to make money and increase what you earn. For example:
If you are content with your current employer: Consider asking for a raise or working toward a promotion. Speak with your manager about your career goals and find out what steps you can take to progress towards them.
If you are open to looking for a new position: Consider taking a course or earning a certification that might put you in the running for a position with a higher paycheck. Make sure to negotiate any job offer before accepting it.
Aside from your primary income, you can also consider one of the best side hustles. Whether you drive for Uber, freelance online, or start a blog, there are many creative ways to turn your talent and entrepreneurial spirit into extra income.
7. Have the right mindset
If you’re used to financial struggle, you might not believe that becoming wealthy is possible for you. This limiting belief makes every other step much more difficult to achieve.
That’s why cultivating a wealth-building mindset is essential to learning how to become rich. It may take consistent, intentional effort to be successful and grow your wealth.
This isn’t to say that there aren’t inequities in society or that everyone begins at the same starting line. Some people face far bigger systemic obstacles than others, and some groups have historically been denied opportunities to build wealth and pass it down to their descendants.
But if you believe that becoming rich is impossible for you, you may not take the steps needed to achieve this goal. Cultivating an abundance mindset and letting go of limiting beliefs aids you in your efforts to build wealth.
How long it takes to become rich
Becoming rich means different things to different people. Some may feel rich by building a net worth of a million dollars or more. Others may be looking for financial freedom that lets them retire early. How long it takes to get rich depends on how you define “rich.”
The average age of millionaires is 57, suggesting that most rich people hit a net worth of $1 million or more close to their retirement ages. Rather than winning the lottery, many millionaires likely became rich by saving and investing for several decades.
Some retirement experts recommend saving enough to replace 70% to 80% of your pre-retirement income. So if you make $100,000 per year, you’d need $70,000 to $80,000 per year in retirement. Using a retirement savings calculator can help you determine how much you’d need to retire and when you can hit this goal.
While this becoming-rich approach doesn’t offer immediate gratification, and it may take many years to achieve, it can set you up for financial stability in your golden years.
FAQs about building wealth
What salary can make you rich?
Rich is a subjective term. While one person might feel rich making $100,000 per year, that salary would be a significant fall from grace for Kim Kardashian or Elon Musk. If we define rich as double the median national household income of $67,500 in 2020, then a salary of $135,000 or more would make you rich by this metric. When considering what salary would make you rich, it’s best to think about your specific situation and goals.
Can you become rich in 10 years?
You may be able to become rich in 10 years through a combination of saving money, increasing your income, setting up multiple income streams, investing, and just plain ol’ getting lucky. You can also learn how to start a business to take charge of your income.
Avoid get-rich-quick schemes. These schemes tend to be very risky, and while a few investors may make millions on these, many more people lose everything they invest.
At what age did Elon Musk become a millionaire?
Elon Musk became a self-made millionaire in 1999 as a 27-year-old entrepreneur when he sold a web-software company for over $300 million. He then became a billionaire at the age of 41. Musk says he owed $100,000 in student loans when he started his first start-up.
Learning how to become rich begins with defining your overall objectives and then setting short-term goals that gradually bring you closer to these goals. Consider how paying off high-interest debt, saving money, investing for the future, and increasing your sources of income may help you become rich.
While it may take time and diligence to become rich, these steps can help you take control of your personal finances and grow your wealth over time. Learn how to make money and explore the best investment apps to start investing.
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This article How to Become Rich: 7 Smart Strategies for Building Wealth originally appeared on FinanceBuzz.