Learn How to Become Rich

Truths That Can Help Set You on the Path to Financial Freedom

© The Balance 2018 

Building wealth can be one of the most exciting and rewarding undertakings in a person's life. Aside from providing a more comfortable day-to-day experience, substantial net worth can reduce stress and anxiety by freeing you from worry about putting food on the table or being able to pay your bills. For some, that alone is enough motivation to start the financial journey. For others, it's more like a game, and their passion for wealth building begins with their first dividend check from a stock they own, interest deposit from a bond they acquired, or rent check from a tenant living in their property.

While there are countless pieces dedicated to individual techniques and strategies for building wealth and becoming rich, advise here focuses more broadly on the philosophy behind how to become wealthy. Considering these points can help you better understand the nature of the challenge you face, as you set to the task of accumulating surplus capital.

Change the Way You Think About Money

The general population has a love/hate relationship with wealth. Some resent those who have money while simultaneously hoping for it themselves. There are exceptions, but the reason a vast majority of people never accumulate a substantial nest egg in a prosperous and free society is that they don't understand the nature of money or how it works. This is, in part, one of the reasons that the children and grandchildren of the wealthy have a so-called "glass floor" beneath them. Just by way of which family they're born into, they receive knowledge and networks that allow them to make better long-term decisions—often without fully realizing how they're benefiting. A fascinating example comes from the field of behavioral economics, where studies have suggested that first-generation college graduates accumulate lower levels of net worth for every dollar in salary income, due to gaps in their knowledge of basic financial concepts such as how to take advantage of 401(k) matching.

The bigger principle here is that capital, like a person, can earn income. When you wake up in the morning and go to work, you are selling a product: yourself (or more specifically, your labor). Your assets, too, have the potential to work and earn income, and realizing this fact unlocks a powerful financial key in your life. Each dollar you save is like an employee. The goal is to make your "employees" work hard, and eventually, they will start making their own money. When you have become truly successful, you no longer have to sell your labor, and you can live off of the labor of your assets. Make it a goal to create or acquire cash-generating assets that will produce more and more funds every day—which you can then redeploy into other investments. 

Understand the Power of Small Amounts

The biggest mistake most people make when trying to figure out how to get wealthy is that they think they have to start with an entire army of funds at their disposal. They suffer from the "not enough" mentality. They believe, if they aren't making $1,000 or $5,000 investments at a time, they will never become rich. What these people don't realize is that armies are built one soldier at a time—so too is their financial arsenal.

You don't necessarily need to become frugal, but small funds can eventually become millions of dollars, as long as you see the potential and start saving.

With Each Dollar You Save, You Are Buying Yourself Freedom

When you put it in these terms, you see how spending $20 here and $40 there can make a huge difference in the long run. Money can work for you, and the more of it you employ, the faster and larger it can grow. Along with more money comes more freedom—the freedom to stay home with your kids, the freedom to retire and travel around the world, or the freedom to quit your job. If you have any source of income, you can start building wealth today. It may only be $5 or $10 at a time, but each of those investments is a stone in the foundation of your financial freedom.

You Are Responsible for Where You Are in Your Life

Investing takes time, and some people are reluctant to get involved because they don't "want to wait 10 years to be rich." They would rather enjoy their money now. The folly with this type of thinking is that the odds are, you are going to be alive in 10 years. The question is whether or not you will be better off when you arrive there. Where you are right now is the sum total of the decisions you have made in the past. Why not apply that mindset to decisions you can take now to yourself up for success in the future? Your life reflects how you spend your time and money. Those two inputs are your destiny. 

Consider Becoming an Owner of Things You Understand as the First Step to Building Wealth

One of the big intellectual and emotional hangups people seem to have when they aren't exposed to wealth is making the connection between productive assets and their everyday life. An investor understands, on a visceral level, that if they own shares of a company such as Diageo—and someone around them takes a sip of Johnnie Walker or Guinness—a portion of the money they paid for the drink will make its way back to them in the form of a dividend. With just a single share in Disney, an investor can watch guests stream into Disneyland, knowing that they enjoy their share of any profits generated from the theme park.

Rich people use a disproportionate percentage of their income to acquire productive assets that cause their friends, family members, colleagues, and fellow citizens to constantly shovel money into their pockets. They make money (albeit, indirectly) every time you take a bite out of a Reese's peanut butter cup, drink a Coca-Cola, or order a Big Mac. If you've ever taken out a student loan or borrowed money to buy a house from a bank like Wells Fargo, you've sent Wells Fargo investors real cash. If you've ever ordered a cup of coffee at Starbucks, bought a tube of Colgate toothpaste, swiped a Visa card—the list goes on! If you don't know where to start with investing, make it a financial priority to acquire ownership of productive assets early in life. Make a conscious, informed decision about how to put every dollar to work, and the miracle of compounding will do the heavy lifting. 

Study Success and Those Who Have Achieved It... Then Emulate It

In societies such as the United States—where for centuries, fewer and fewer millionaires and billionaires are first-generation or self-made—building wealth is often the by-product of behavioral patterns that are conducive to building wealth. It's basic mathematics. Replicate the behavior and net worth tends to accumulate.

A very wise investor once said to pick the traits you admire and dislike the most about your heroes, then do everything in your power to develop the traits you like and reject the ones you don't. Mold yourself into who you want to become. You'll find that by investing in yourself first, money will begin to flow into your life. Success and wealth beget success and wealth. You have to purchase your way into that cycle, and you do so by building your financial army one soldier at a time and putting each dollar to work for you.

Realize that More Money Isn't the Answer

More money is not going to solve all your problems. Money is a magnifying glass; it will accelerate and bring to light your true spending habits. If you are not capable of properly budgeting a $25,000 salary, bumping your pay up to six figures won't solve the problem. You may be surprised to learn that many people earning $100,000 a year live from paycheck to paycheck, and they don't understand why it is happening. The problem isn't the size of their checks, it is the spending habits they have built up over the years.

Unless Your Parents Were Wealthy, Don't Do What They Did

The definition of insanity is doing the same thing over and over again and expecting a different result. If your parents were not living the life you want to live, then don't do what they did! You must break away from the mentality of past generations if you want to have a different lifestyle than they had.

Do These 2 Things to Get Rich

To achieve financial freedom and success, which your family may or may not have had, you have to do two things. First, make a firm commitment to pay off any debt you have. Identify which debts should be paid off before you invest and tackle those debts first. Second, make saving and investing the highest financial priority in your life (one technique is to pay yourself first).

Purchasing equity is vital to your financial success as an individual, whether you need cash income or desire long-term appreciation in stock value. Nowhere else can your money do as much for you as it can when invested in a business that has wonderful long-term prospects. Properly invested, these funds can generate passive income, which is a key component of how to get rich.

Don't Worry

The miracle of life is that it doesn't matter so much where you are, it matters where you are going. Once you have chosen to take control back of your life by building up your net worth, don't give a second thought to the "what ifs." Every moment that goes by, you are growing closer and closer to your ultimate goal—control and freedom.

Every dollar that passes through your hands is a seed planted for your financial future. Rest assured, if you are diligent and responsible, financial prosperity is an inevitability. The day will come when you make your last payment on your car, your house, or whatever else it is you owe. Until then, enjoy the process.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.