You might think that learing how to become rich isn’t something you can learn at all. If you’re wondering how to become rich, you might think it’s all down to luck – or it’s only possible to get there with specialized knowledge the average person just can’t access.
Here’s the good news: neither is true.
You don’t have to be born into money to become wealthy. You don’t need to get extremely lucky or get a one-in-a-million chance to reach financial success.
What you do need is the understanding that growing wealth is a skill. Like any skill, this is something you can learn. Once you learn it, you can practice it over time to get to some truly astounding financial results.
That doesn’t mean there is no role for luck to play if you’re considering how to become rich. Another way to say that is becoming wealthy is not solely dependent on your skill level (or willpower, or actions you do or don’t take). Everyone in a strong financial position can attribute at least some of their success to luck…
But you can’t get lucky if you’re not playing the game to begin with. Once you know the rules and start participating, you can hone your skills and start growing your net worth.
How to Become Rich: Know the Basic Actions to Take
Learning how to become rich might sound like a complicated undertaking. Here’s more good news: the foundational actions are very simple. In fact, you might be surprised at what you already know about building wealth.
The tricky thing is not in the actions, or habits, or steps themselves. The challenge lies in executing on these basic actions correctly, consistently, and continually over decades of time.
Here are the core actions you need to take to build wealth:
1. Control Your Cash Flow
You need to properly manage cash inflows while mindfully controlling your outflows. Money coming in needs to be allocated wisely if you want to understand how to become rich, which means correctly dividing it between your needs, your savings, and your investments.
Meanwhile, money going out needs to be carefully considered. Are you spending far less than you earn? Are you spending money on what you value and getting the most out of every dollar – either in terms of utility, or enjoyment?
You can’t grow wealth if you don’t manage lifestyle creep. One of the most effective ways you can start increasing your net worth is to create a gap between how much you earn and how much you spend… and then take the money from that gap and invest it wisely.
(By the way: this is one factor that separates people who are truly rich and wealthy from those who only look like it. If all your money flows right back out the door because you spent it on houses, cars, vacations, shopping, and big nights out but your bank and investment accounts are empty? You’re just talking the talk. The people who turn their income into appreciating assets that consistently grow in value, however, are actually walking the walk and building true freedom into their lives.)
You don’t have to be super frugal to achieve this. Remember, this is all relative. If you earn $10,000,000 a year, spending $5,000,000 a year isn’t unreasonable. In fact, it’s only half your income.
But if you earn $300,000 per year and you spend $275,000 of it, that’s almost 92% of your income that goes right back out the door… living you with very little to use in achieving the goal of becoming truly rich.
2. Focus on Earning More
Managing your cash flow well is possibly the very first step in knowing how to become rich. A close second? Working to increase your income.
Self-made millionaires didn’t grow wealth by clipping coupons. While maintaining a reasonable level of spending and prioritizing your savings are both key components to good money management, there are only so many expenses you can cut.
But theoretically, your earning potential is unlimited. If you want to grow wealth, you should consider how you can increase your income.
There are many ways you can do this. The most effective path for you will depend on your circumstances, your experiences, and your existing resources (including your relationships and network).
When you earn more, you have more resources available to deploy. Your ability to grow wealth compounds.
3. Don’t Just Save: Invest (Wisely) in Various Ways
Saving money is good. At a minimum, you need to save up and create:
- A cash buffer in your checking account to avoid accidentally overdrawing it in the process of handling your month-to-month bills and spending.
- An emergency fund so unexpected expenses don’t throw off your financial plan; aiming to have 3 to 6 months’ worth of expenses earnmarked for emergencies is a good place to start.
- An automatic contribution of funds you need to pay for or achieve shorter-term goals, or a cash slush fund so that you have a small pool of money available for the inevitable (but hopefully occasional) impulse buy or just-because-I-want-it purchase.
Beyond that, you probably don’t need to stockpile cash to become wealthy. What you do need is to invest.
Saving alone is not sufficient because your money isn’t being used to purchase something (an asset, equity, securities, etc) that may appreciate in value over time while also providing a return on your initial contribution.
If you only save, your money will lose purchasing power over time thanks to inflation. When you invest, you take on more risks — but you also open yourself up to greater potential rewards.
People who are wealthy invest in a number of ways, depending on their strategy for growing that wealth. Here are just a few things you could consider investing in (noting that the best option for you depends on your specific situation, needs, and goals):
- Stocks, bonds, or other securities or commodities traded on financial markets
- Real estate (via actual property, or by investing in REITs)
- Businesses, either as an employee (which might mean earning equity compensation), an entrepreneur starting their own business, or an investor buying into someone else’s business
- Various other assets, like art or collectables (although, for the record, most people are probably better off exploring other avenues)
- Other alternatives, like crowdfunding or peer-to-peer lending
We believe most people’s investment priority should be investing in financial markets by making contributions to diversified portfolios within retirement plans (including 401(k)s and IRAs), brokerage accounts, and other advantaged accounts (like HSAs).
While this might not be the sexiest, most exciting strategy for building wealth, it is, relative to other options: reliable, low-cost, accessible, and potentially lower risk.
Many people don’t understand how powerful compounding returns can be over time… which means you don’t need to hit a single home run to strike it rich. You simply need to stay consistent, take on the appropriate level of risk for your overall plan, and take actions you can sustain.
Trying to make speculative bets in the market is an unforced error for most investors. It usually means taking on a massive amount of risk that you actually can’t afford to recover from if your bet was wrong.
Good risk management recognizes when it’s more important to avoid implementing a bad strategy rather than worry about missing any one potentially good but also high-risk strategy.
4. Avoid Bad (and Unnecessary Debt), and Consider “Good” Debt with Caution
Truly wealthy people do not walk around with credit card debt and think that’s normal or okay. You don’t have to feel ashamed of your debt, but you do need a plan to repay it — and then stay debt-free.
If you consistently spend more than you earn and rack up balances on credit cards or find yourself financing purchases because that’s the only way to buy the thing you want (even if that thing is a car), it’s time to check yourself. You are not on a path to wealth.
That’s not to say you won’t ever be. But you need to get your cash flow under control, spend far less than you make, and create a debt repayment plan to knock out balances and things you’re paying interest on first.
“Avoiding debt” generally means steering clear of debt that is bad and unnecessary. In general, that means debt that you take on to acquire a depreciating asset. Think things like consumer spending or personal loans that you use to finance your lifestyle (including trips).
There are other debts that are not so insidious to your wealth-building goals. “Good” debt is leverage you apply to something that could appreciate in value or eventually provide a return down the road.
This could be a loan you take out to start a business, or a mortage you use to buy a house, or student loans you borrow to get an advanced degree.
These debts could help you leverage yourself into a better financial situation, but you have to be careful. They can backfire, too.
Taking out a loan to help you pay for an advanced degree could help you earn more, but there may be other ways to fund your education or even other avenues to achieve the same career and earnings goals.
Using a mortgage to purchase a property could allow you to own an asset without requiring you to front huge sums of cash to do it, but you could also end up with a declining home value or a monthly cash flow that’s in a stranglehold if something unexpected happens (like a job loss).
Getting funding to start a business could be one of the best moves you make on the journey where you figure out how to become rich — or it could completely sink you if the business crashes and burns.
The point is with leverage comes risk. You need to not only acknowledge that risk, but evaluate it.
Have you calculated whether or not you have the tolerance and capacity for this specific risk? Do you understand how risky or not the particular kind of leverage you’re looking at might be?
The Habits to Hone Over Time to Help Build Wealth
Again, this list of basic actions to take if you’re wondering how to become rich is relatively accessible to most people. Almost any other specific financial “to do” that could help you become rich is really some variation on these themes.
There are no secrets. There’s no special knowledge that’s being kept from you. It’s all right here:
- Spend less, save more
- Increase income
- Invest wisely
- Avoid overspending, bad debt, and too much risk
Master these concepts, and you’ll grow your wealth.
Of course, mastery – even of basic ideas – is never easy to achieve. While these ideas are simple, the reality is most people aren’t rich or on the path to wealth. Why is that?
Because it’s not enough to do these things once or twice. It’s not going to work if you occasionally take your finances seriously but aren’t mindful all the time. You won’t build wealth if you stick with good money management habits for a year or two, then forget about them.
It comes down to your habits. It’s about the actions you take not just once or when you think about it, but every single day. It’s about the time and energy you invest in making the right decisions over and over and over again.
This is where building wealth gets hard. This is what separates many people who have the potential to become wealthy from the people who are wealthy.
3 Unexpected Habits That Will Help You Become Wealthy
You may be surprised at the kinds of habits and behaviors you need to learn to successfully implement the action steps that will take you from where you are today, to the wealth you want tomorrow.
Here are some (although certainly not all!) of the most important habits to cultivate if you want to know how to become rich:
This may be the most important habit on the list. It’s also one of the hardest to develop and maintain.
It’s not enough to get something right once, or to make a smart money move on occasion.
You have to make good decisions and stick to positive actions daily, weekly, monthly, yearly – year over year over year. It can take decades of time to wisely, safely build wealth from scratch without taking unnecessary risks.
You don’t get to take time off from caring about your finances and doing the work to create your own wealth.
The more consistent you are with the financial chocies you make, the more likely you will be to succeed in your goals and go from wondering how to become rich to actually being rich.
How can you be more consistent? Try:
- Automating everything you can. Set up automatic contributions to savings and retirement plans. Dollar-cost average your investment contributions. Schedule recurring money meetings on your calendar (either with your financial advisor, or just with your spouse to review your finances and plans). You want to minimize the decisions you have to make on a regular basis… because if it’s not optional, you’re more likely to just do it.
- Setting your strategy and writing out your action steps: You need a plan. If you’re just winging it all the time, you’re going to be erratic and constantly changing lanes (even if you don’t mean to; it just takes too much thought and energy to maintain consistency when you have no idea where the lane you want to be in even is!).
- Taking your emotions out of it: If we were all robots, it would be so easy to program ourselves to make the best financial choices all the time. But we’re humans, we feel things, and we react to our emotions. We need systems that help us remove emotional thinking from financial conversations so that we can more consistently choose the best actions for us both when we can plan ahead and in the moment.
Another habit to cultivate in order to learn how to become rich is focus. There is so much to focus on… and so often, we get distracted and give our attention to the wrong things.
Imagine you’re going for a jog. You look ahead of you and your body follows where your eyes are — which is why if you hear someone coming up beside you and you turn your head to look, your body will ever so slightly start curving toward where your line of sight is going.
The same thing happens to us in other areas of life, too… including our financial lives.
We see someone who has more than us, and we lose our focus on our own goals, wants, and happiness. We compare ourselves to them instead. This is a massive trap that can cause you to make bad financial choices.
Without focus, you will find you are constantly distracted from your own plans and strategies. You open yourself up to making money mistakes that can set you back years.
Learn to focus. Focus on what you can control. Focus on making rational decisions. Focus on your values and priorities. Tune out the noise of everything else.
If you don’t know something, ask questions. Seek out knowledge and information. Work with experts who can translate that information and apply context to provide you with true wisdom.
We live in a time where almost anything you want to know or learn is available for you to find within seconds. That’s amazing — and yet so many people simply don’t ask questions about what they don’t know (or aren’t sure about).
Questioning things is how you uncover opportunities you might have otherwised missed. It’s how you optimize a strategy to really dial it in. It’s how you stay engaged, and how you spot big mistakes coming and course correct before you stumble into them.
So be curious. Question everthing (especially things you don’t know).
And in addition to questioning what you don’t know… consider that there may be things you don’t know you don’t know.
These are your blind spots, and you might not even know they exist. That’s why it’s helpful to seek out different perspectives and outside opinions, or a second set of eyeballs who can double-check you’re making the right moves.
This is why successful (and yes, wealthy!) people have coaches, advisors, mentors, and teams of experts who all contribute to their success.
These professionals don’t just provide guidance and wisdom, but they can also help you avoid stepping on a landmine you didn’t even know was there because you had no idea you were supposed to look for it.
Finally, you should question yourself. Challenge your beliefs and opinions; seek out your biases and ask “why do I think or feel this way?”
You don’t have to radically change yourself — but you should be open to making adjustments based on new information or perspectives. You should periodically examine your own beliefs and look at what no longer serves you (or what was never accurate in the first place).
Question everything, including yourself. Seek to learn, seek to improve, and seek out the wisdom of others to help you along the way.
Now That You Know How to Become Rich, It’s Time to Get in Action
It’s great to know the right moves to make to achieve your goals – like building wealth. But knowledge alone is not enough. You need to pair this newfound insight with the basic actions required to grow your wealth… as well as the core habits that will help you sustain those actions throughout the process.
Unsure of where to start – or, more importantly, have you realized growing wealth is important to you but you don’t want to do it alone?
Request a complimentary consultation with BYH. We’ll discuss your financial planning needs and create an initial one-page plan for you, so you can remove uncertainty and gain confidence about your financial journey.