Here’s what most people get wrong about building wealth: they think it requires luck, special connections, or secret knowledge only the already-rich possess.
The truth?
Wealth-building is a skill you can learn.
Like any skill, it requires practice, consistency, and the right strategy. And while luck (along with randomness and chance) plays a role in any series of events, you can’t experience luck if you’re not in the game to begin with.
The challenge isn’t understanding what to do—the fundamentals are surprisingly simple.
The real difficulty lies in executing these basics consistently over years and decades.
Here’s your practical guide to making it happen.
Key Takeaways
- Wealth-building is a skill, not a secret. It’s a practical process that requires consistent action over time, not luck or special knowledge.
- Focus on the fundamentals. The core of building wealth involves four key actions: mastering your cash flow, aggressively increasing your income, investing appropriately, and eliminating bad debt while leveraging good debt with caution.
- Your savings rate is your most powerful tool. Consistently spending less than you earn and investing the difference is more impactful than trying to “time the market” or hit a home run with a single investment.
- Cultivate essential habits for long-term success. Stay ruthlessly consistent with your actions, focus on what you can control (your savings rate and skills), and continually educate yourself and seek expert guidance.
- Knowledge won’t get you far without action! The key to building wealth is to start today. Take small, actionable steps like tracking your expenses, opening an investment account, and setting up automatic transfers to get started on the path to growing wealth.
The 4 Core Actions for Building Wealth
1. Master Your Cash Flow
The Rule: Spend significantly less than you earn, then invest the difference.
This isn’t about extreme frugality or pinching pennies. But 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.
If you earn $500,000 annually, spending $465,000 leaves you with just $35,000 for saving and investing. Not much of a gap – and certainly not enough leverage if you’re focused on learning how to build wealth.
But if you reduce your spending to make room to contribute 25% of your income to long-term savings and investments, you’ll make better progress toward your financial goals while still having sufficient cash flow to enjoy life today.
25% of $500,000 is $125,000. That leaves $375,000 worth of earnings to handle taxes, expenses, and your discretionary spending.
Action Steps:
- Track every dollar for one month to understand your current spending
- Identify your three highest non-essential expenses, or, more importantly, any spending that doesn’t actually align with your goals or values
- Slowly cut the unnecessary, mindless, or misaligned spending from your regular budget
- Prioritize savings first — set a savings target, then automate transfers to move money out of your bank and into retirement plans or investment vehicles before you can spend it
- Base your budget on what’s left after you take care of your savings
2. Aggressively Increase Your Income
The Rule: Focus your energy and effort on building income, rather than trying to cut expenses to an absolute minimum.
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.
On the flipside, your earning potential is theoretically unlimited. Investing in your ability to earn more money will pay much higher returns than minimizing what’s going out the door.
Here are some income acceleration strategies to consider:
Consider Skill Development: Focus on high-value skills that directly impact your earning potential. Advanced or emerging tech skills are often in demand, but don’t overlook industry-specific expertise. Niche knowledge is extremely valuable! Improving or adding to your skills doesn’t necessarily mean “going back to school,” either. While additional or advanced degrees can help in some cases, you may find better ROI through specialized coursework, training programs, or on-the-job experience.
Engage in Salary Negotiation: Research your market value using sites like Glassdoor and PayScale, but also by talking with recruiters, others in the industry, and hiring managers. Pair that research with documentation of your own achievements and, ideally, tangible examples of how you’re adding to the bottom line of the company (rather than being a source of costs). You may also want to explore opportunities with other employers and negotiate higher starting salaries in new positions.
Explore Entrepreneurship: While starting a business or freelance position is not for everyone, it can be a good path to expanding your income potential if you’re willing to take on more risk. You may want to consider business ideas and opportunities that allow you to leverage existing skills rather than starting from scratch, or jumping into an arena you have little knowledge or previous experience in.
Try a Career Pivot: Sometimes the biggest income jumps require strategic career moves. Identify industries or roles where you may have transferable skills and pay packages are larger — or include different comp structures like equity grants or commissions.
The most effective path for increasing income 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.
Action Steps:
- Consider what avenue for increasing your income makes the most sense for your specific skill set and situation
- Look for opportunities to pivot, negotiate higher pay, or change employers for a higher-value compensation package
3. Don’t Just Save: Invest (Wisely) in Various Ways
Saving alone won’t make you wealthy. It’s an important habit to build, but you need to make sure some of your savings makes it to long-term growth vehicles.
In other words, you need to invest!
Inflation will eat away at your purchasing power over time. Investing is one way to outpace inflation, especially when you begin to reap the benefits of compounding returns.
Understand Your Core Cash Needs
You do need cash on hand. At a minimum, you should aim to have sufficient cash in the bank to provide you with:
- 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 earmarked 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 as you learn how to build wealth. Excess cash should be redirected to investments for long-term growth.
Invest Excess Cash (and Consider Ongoing Contributions for Dollar Cost Averaging)
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.
Action Steps:
- Identify how much cash you need to have in the bank to cover your short-term needs (including an emergency fund); if you have extra cash above this amount, consider contributing to a long-term investment vehicle
- Determine how you will periodically fund your long-term investment accounts (including retirement plans and taxable brokerage accounts); automate these contributions if possible
- Keep your investment strategy simple, do your due diligence, and properly manage risks along the way
- Consider speaking with a fee-only fiduciary advisor to optimize your investment management
4. Eliminate Bad Debt While Using Good Debt with Care
Bad debt is that which finances depreciating assets or lifestyle spending. Think interest on credit card balances, car loans, or personal loans for discretionary spending.
Bad debt gives you no way to apply leverage, and generally only creates spiraling costs that can quickly get out of control and eat away at your cash flow.
“Good debt” is a way to leverage your money to take advantage of an appreciating asset. Generally, mortgages are considered good debt – although that doesn’t mean all mortgages are acceptable. You still need to consider your total housing costs and aim to keep those to 20% or less of your gross income.
Student loans may also be good debt, if they help you gain an education that provides you with a career that pays more than you otherwise would not have been qualified to start. Business loans are in the same category; if they are used to increase the value and the revenue of the business, this can be helpful leverage to build wealth.
Leverage comes with risk. Proceed with caution.
Action Steps:
- Eliminate high-interest debts
- Avoid debt on depreciating assets
- When determining if financing is “worth it,” compare the interest rate on the financing to the expected rate of return – for example, it could make sense to finance a car at 2% if you could take the same money you would have used to pay for the car and invest it in the market for the long-term where you expect to earn 5–6% or more.
- Remember that “good debt” is still debt, so do your due diligence before choosing to use it as leverage. You still have to repay what you borrow, and interest is an extra cost.
Optimize for Consistency
While the actions above will help you as you set out to learn how to build wealth, 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.
The more consistent you are with the financial choices you make, the more likely you will be to succeed in your goals and go from wondering how to build wealth to actually being wealthy.
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.
Don’t Wait for Perfect Timing; the Best Time to Learn How to Build Wealth Is Right Now
If you wait for perfect clarity before you act, you’ll never even start. Especially when it comes to your investments and money management.
There’s no shortage of reasons to worry, or to obsess over feeling like you have to get it right. This is your money, you worked hard for it, and it is painful to make a mistake.
But that’s not a reason to avoid the issue or play it (too) safe.
Instead of avoidance, you need to start slow, stay steady, and seek consistency.
Warren Buffett accumulated most of his wealth after age 65 not because he’s the best at timing the market, but because he wasn’t thinking about timing the market!
He was thinking about staying in, staying rational, and using his rules-based systems to make sound decisions.
One of the trickiest things about money and investments isn’t the fears, or concerns, or risks that you can identify.
It’s all the ones you didn’t even think about, or didn’t even realize you had to worry about.
(Like the fact that NOT investing into long-term growth vehicles might leave you short of the net worth you need to meet your biggest financial goals.)
Time is one of your biggest allies in the project of building wealth. Simply starting today — even if it’s small, even if you still have questions, even if it feels a little uncomfortable — gives you an advantage that only compounds with time.
Don’t have the proper plan in place yet to help you build wealth? We can help.