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 articles dedicated to individual techniques and strategies for building wealth and becoming rich, the advice 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
One reason that many people never accumulate a substantial nest egg is that they don't understand 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.
No matter the household you grew up in, the key is to push to move past selling your labor (work) to making your money work for you. 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 returns on 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
One of the mistakes most people make when trying to figure out how to get wealthy is that they think they have to start with an army of funds. They suffer from the "not enough" mentality: “I don’t have enough money to invest.” They believe if they aren't making $1,000 or $5,000 investments at a time, they will never become rich. However, armies are built one soldier at a time—so too for your 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
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, to retire and travel around the world, 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. Once financially independent, you're no longer tied to a job or employer; you're free to do what you want because you're creating your own income.
Building Wealth Takes Time
Some people are reluctant to make a wealth-building plan 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 most of us are going to be alive in 10 years. The question is whether or not you will be better off 10 years from now than you are today. 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.
Consider Becoming an Owner
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 liquor and beer manufacturer 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.
One of the strategies of the wealthy is to use their income to acquire productive assets their friends, family members, colleagues, and fellow citizens partake in. 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 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 interest will do the heavy lifting.
Study Success and Those Who Have Achieved 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. Replicate the behavior and net worth tends to accumulate.
Look for financial lessons not only in real-life examples, but in literature, film, TV, and other stories. These financial parables will help you understand the sometimes-complicated nature of investing for long-term gains.
You'll find that by investing in yourself first, the 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 nearly 1 out of 5 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.
Pay Off Debt, Save and Invest
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).
With passive income, you can create cash flow without even having to get out of bed in the morning. Learn about the different types of passive income so you can start to build your net worth beyond what's possible with a 40-hour workweek.
The Bottom Line: 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. 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.
Frequently Asked Questions (FAQs)
How rich are Elon Musk, Bill Gates, and Jeff Bezos?
Determining a billionaire's net worth can be complicated. Many billionaires place a substantial portion of their net worth in assets with fluctuating values, such as stocks, bonds, options, and real estate. A Forbes estimate from March 2022 placed the net worths of Elon Musk, Jeff Bezos, and Bill Gates at $219 billion, $171 billion, and $129 billion, respectively.
How much money do you need to be rich?
The median household net worth in the U.S. in 2019 was $118,000 (including home equity). By that measurement, having more than $118,000 makes your household richer than most American households. You can also calculate what it takes to be "rich" by taking income into account. If you divide Americans into quintiles by income, the top two quintiles have median net worths of $201,800 and $608,900. Having a net worth fall between those two figures puts you in line with the top earners in the country.