Getting rich is pretty high on most people’s list of financial hopes and aspirations. After all, it will allow you to not only have more security when making financial decisions but also have more options, such as retirement plans, if you want to start investing elsewhere.
Any financial advisor would tell you that your long-term personal finances and growth depend on more than just what you put in a savings account. Here are five ways experts advise on how to become rich:
1. Avoid or Pay Down Debt
Debt, especially high-interest debt, is not necessarily bad in all instances, but it is something to be avoided most of the time. For instance, student loans can be beneficial if the principal and interest rate are not excessive and they help you pursue a lucrative career.
“Some experts would contend that student loans are bad debt, but I disagree,” said Robert Johnson, chairman and CEO at Economic Index Associates. “I would categorize modest student loan debt as being ‘good debt.’ In my opinion, student loans get a bad rap.”
Again, the emphasis is on how you use them. Student loans can certainly be bad if the numbers don’t work in your favor. “There is no doubt that the system has been abused and that some students have accumulated a mountain of debt and have earned degrees that simply won’t provide the earning power to pay that debt back,” Johnson said.
Johnson also emphasised that credit card debt is always bad debt and should be prioritised over student loans. Ariel Acuña, founder of independent wealth management firm LTG Capital LLC, recommended putting at least 20% of your paycheck towards debt if you have it.
2. Spend intentionally and minimise costs.
If you want to become rich, it’s important to minimise your costs and be more intentional with your spending. This is the second step because it should be one of the first things you do, as it leads to saving money. Spending intentionally and minimising your costs will require you to keep a budget.
In doing so, you can keep track of exactly how much you spend and where you spend it. Acuña recommends a checklist of how you will spend. “Develop a prioritised checklist for how you’re going to spend your paychecks when you receive them. This includes allocating money to debt reduction, savings, fun, emergencies, etc.”
Your goal should be to minimise costs as much as possible, so you can put that money towards building wealth. Jeff Burrow, president and lead advisor at Sierra Ocean, said you should “ravenously find ways to limit your lifestyle costs and save 25% of your income.”
3. Invest in a Diversified Portfolio
While there are limits to how much you can put into a 401(k) or IRA, those limits are high enough that many people are not able to reach them. And if you do, you can always invest more in a taxable brokerage account. Thus, if you want to become rich, you should invest as much as you can; there is no upper limit to that amount.
There are many different investment strategies, but most experts recommend putting most of your money in the stock market to get rich. Some recommend a smaller portion of real estate or even speculative investments. Burrow recommends a portfolio of 65% stocks, 25% real estate, and 10% speculative assets of choice.
You will want to invest that money in a tax-advantaged account such as a 401(k) or IRA first. That will help you minimise your tax bill and thus increase your returns over time. If you manage to max out all tax-advantaged accounts, you can move to a brokerage account.
4. Work on Your Career
There is no substitute for a higher income. As they say, there is only so much you can cut in terms of expenses, but there is no limit to how much your income can increase, at least in theory.
“Ensure that as you advance in your career, business, or main occupation, you always save more than you spend as you earn raises and increase your gross income,” Burrow said. “Lifestyle cost creep will absolutely wreck a plan to get rich as quickly as possible.”
Of course, increasing your income will depend on the job you have. Those working hourly jobs, for example, may have minimal leverage to increase their income. But if it is possible for you to move up the corporate ladder, that can be a powerful way to become rich, as you will be able to save and invest more.
5. Start a side hustle.
The idea of a side gig or extra work is nothing new, but if you have some extra time and can pick up some extra work for a few hours a week, that can be a powerful way to increase your income.
Gig economy companies such as Uber and TaskRabbit make it easy to find flexible work. And there is no shortage of lists of different types of side hustles to be found online.
Finding a side hustle is sometimes easier said than done, but this can be extra money that you can continue to invest further. “Immediately go try and find two to three side hustles that can boost your take-home income. Save as much of that as you can,” Burrow said.
Final Take to Go
In reality, there are arguably no secrets to becoming rich. Time-tested approaches are generally your best bet, and our experts confirmed that.
Whether it is putting money into retirement accounts, investing in stocks and bonds, or just paying off your debt, there are many small steps you can take now to become rich.