Whether you believe it or not, there are no tricks to becoming wealthy but there are proven steps that if followed can help anyone become wealthy and they are the following:
Step #1: Living frugally
The first step to building your wealth is learning how to live frugally. What does it mean to live frugally? Living frugally is simply the act of being intentional with your spending. It may surprise you to know that the majority of people do not plan how they spend their money. But this isn’t just a problem for low income earners. No matter how much you make, if you spend more than you earn, you will never become wealthy. Living frugally means that you are living below your means and this is only possible through setting the right priorities. For instance, living frugally helps you differentiate your needs and wants and this helps you avoid unnecessary spending.
Sadly, some people look down on the concept of frugal living however it’s likely because they haven’t been taught the benefits of this financial ideology yet. Living frugally can help you minimize costs and have more money to save at the end of the day. When you decide to spend less money on a particular item because you simply don’t need it, you can use the money for other things, like growing your wealth. You can use money saved to invest in assets that will pay you over time and when you keep these benefits in mind, it becomes a whole lot easier to live frugally.
You may also want to ask how one goes about living a frugal life? Well, the first step is to create a budget and stick to it. A budget is one of the ways to easily manage your finances and cut out unnecessary spending. A budget allows you to plan how to spend your money even before you have earned it!
Another way to live frugally is to minimize your biggest expenses such as the cost of food. You can minimize how much you spend on food every month by cooking at home and limiting the number of times you eat out. Do you know that you can save about $10 to $20 every time you food at home instead of going out? Multiply this savings by the number of days in a month that you typically eat out and you will see that it adds up to an appreciable savings over time. Now, if you find it difficult to cook at home because of the time investment then here’s a tip that can help. Prep all of your meals on the weekend and throw them in the freezer. This means you only have to cook and clean once a week and you’ve also reap the financial benefits you desire!
One other way that you can save some money and live frugally is to check for coupons and discounts whenever you want to make a purchase. You may also consider buying used items instead of new ones to save some cash. As the saying goes, “one man’s trash in another man’s treasure”.
One final note on living frugally is that it does involve some planning. You must plan your spending at a macro level through the use of your budget and also be intentional whenever you go out shopping. However, failing to plan is planning to fail and by putting a bit more effort into being money conscious you are laying the foundation to create a life of financial prosperity for yourself!
Step #2: Investing in wealth generating assets
You are not maximizing the income you can earn if the only way you make money is by actively trading your time for money. Most people who work at a 9 to 5 job fall into this category. Now, there is nothing inherently wrong with earning an income this way but I believe that rarely anyone becomes rich in this manner. Warren Buffett once said:
“if you don’t find a way to make money while you sleep, you will work until you die.”
What he is simply trying to say is that you must find ways to invest in assets that will grow your wealth without you having to work.
Having a job is working for money but investing in assets is making money work for you. You will find that investing in assets is one of the things that the richest people in the world today have in common. Assets are the things that you spend money on that increase in value, pay you or do both at the same time. Let me share with you some assets that you can invest in to grow your wealth.
Real estate is one of the assets that wealthy people invest their money in and you should invest in it too. Real estate is the buying and selling of properties and land for commercial, industrial, and residential purposes and other special use. There are different ways that you can make money when you invest in real estate. One common way that you can make money from real estate is by renting out the properties you own.
Another way that people make money from real estate is by buying a property and reselling it when the value increases. If you buy a house in a quickly developing area, the value of your house may increase offering you the ability to re-sell it at a profit. You can also buy, renovate and flip a property in order to turn a profit through the use of real estate.
Another asset you can invest in to grow your wealth are mutual funds. Mutual funds consist of pools of investor’s money invested in assets such as stocks and bonds. Mutual funds have fewer risks because they diversify your investment and are managed by professionals but do come with higher fees than other assets like ETFs or index funds.
If you want to take a more targeted approach to investing then another option is buying individual stocks. When you invest in stocks, what you are doing is buying ownership in a certain company. If the company performs well, the value of your shares will increase and if you sell them at this time then you can collect some profits and move onto the next investment.
You can also earn money from stocks through dividends. In simple terms, a dividend is a reward a company grants its investors for having bought into the company through their investing funds. Generally, these dividends are paid quarterly and are a partial distribution of the company’s profits for the period. Lucky for you, investing in stocks has never been easier if this is a method of wealth generation that intrigues you! You don’t need to have much money or do a lot of work to succeed in investing. Some brokers allow you to invest with little money and you can do that from the comfort of your home either on your computer or phone.
Step #3: Learn a high-income skill
One of the best ways investments you can make is in yourself. Since most people stop learning after college, this would most certainly allow you to rise above the rest and increase your overall value. And this value is important because your value ultimately impacts how much money you make. Have you ever noticed how many different people work in an organization but they aren’t all paid the same? The reason for this is very simple; not all of them have the same value or contribute the same amount to the growth of the organization. The highest-paid people in an organization are those who provide the most value and often that’s through their high-income skills. These are skills that are in high demand and not many people can perform them. People are willing to pay a high price for these skills because of the level of growth that such skills can bring to their organization. That is why a janitor, a director and a CEO don’t all earn the same amount of money.
So what high-income skills can you cultivate to increase your own income? Well, I’m glad you asked! Some of the high-income skills that are in demand today revolve around selling skills such as copywriting. Copywriters are in demand in various organizations today because of their ability to write in a compelling way that would make people take the action the organization desires. Another skill that is in high demand is public speaking. Public speakers can represent their company and make presentations or deliver lectures. One other skill that most organizations are willing to pay for today is digital marketing. Digital marketers use various tools to market and sell online. They can use emails and social media to reach out to prospective clients and try to convince them to become customers. Other high-income skills include search engine optimization (SEO), graphics design, computer programming, project management, and many others.
In short, by learning a valuable skill, making money and becoming wealthy will become significantly more attainable.
Step #4: Re-invest your returns
The last step in growing your wealth that I’m going to share you is reinvesting money from your assets. When you invest in assets like stocks, the company may pay dividends or provide you with a profit when you sell them. When you invest in real estate, you may be collecting rent payments over time. If you want to grow your wealth, instead of receiving these returns and spending them, you can use them to buy more assets.
One of the benefits of doing this is that it will increase your overall asset base over time. Another benefit is that you can easily attain financial independence when you reinvest. Generally, the money you make from your investments comes in the form of passive income and when the amount of money you make from your passive income is enough to sustain your living expenses, you can say that you have attained financial freedom.
There is also the benefit of compound interest when you reinvest money from your assets rather than cashing out. Here’s a simplified example for demonstrative purposes. Let’s assume that you invest $1,000 for 10 years with a constant interest rate of 5% per annum. If you receive the interest every year without reinvesting, you would have $500 after 10 years. But let’s now assume that you reinvest that interest every year. In this case, you would have made a total of $626.89 after 10 years.
As an investor, you can reinvest your dividends by purchasing additional units of the stock. There are options like dividend reinvestment plans (DRIP) that allow you to do this automatically. You may also decide to use your dividend to diversify your portfolio by buying stocks from different companies.
This is an example of re-investing in paper assets but you can do the same with real estate. You can invest the money from your real estate assets into buying more properties. The idea is that if these properties provide you with profits, then buying additional properties may give you even more profits.
So there you have it, the 4 steps anyone can use to grow their wealth!