Many people believe that having a low income inevitably forces you to live in unfavorable conditions. However, even with a low income, you may still control your destiny and have a great future. You can reach this objective and realize your dream of wealth by making the appropriate financial planning decisions.
It is a truth that many people have succeeded and amassed money over time by saving, careful planning for households with low incomes, and savvy investment choices.
Let’s take a closer look and study the methods that can help you guide to financial wellness so that you can harness these helpful strategies.
How to become rich in 7 steps
Self-made millionaires are not affluent by chance. Instead, people frequently engage in deliberate behavior to generate income and amass wealth. Choosing and sticking to a step-by-step plan will help you improve your wealth if you’re ready to take charge of your money.
Before you get started on becoming rich, devise a financial plan. Here are a few questions you may ask yourself as you put your plan together:
- What does being rich mean? Is there a particular net worth I’d like to hit?
- What is my monthly budget goal? Am I looking to put money aside to invest or to pay off debt?
- Am I looking to achieve early retirement?
Get specific with your answers so you know your exact goals. Once you have your big-picture vision established, break it down into smaller short-term goals that are easier to achieve. By creating this roadmap, you should have a clearer sense of what your destination is and how to get there.
2. End your high-interest debt
Nothing drags down your hard work like high-interest debt. Total consumer debt balances increased 5.4% between 2020 and 2021, according to Experian, one of the three national credit bureaus.
Debt with high interest rates, such as credit card debt, can be challenging to pay back. Not only are you paying the principal amount you borrowed, but you’re often paying hefty interest charges as well.
To take control of your debt, start by listing all your loans from highest interest rate to lowest. Consider making extra payments toward the original loan amount on your high-interest debts first to minimize the total amount of interest you might owe by the time the debt is paid off. You’ll likely need to specify that the extra payment is for the original loan amount — ask your lender if there is a certain process you should follow when using this strategy.
3. Start budgeting and saving money
To pay off debt and hit your financial goals, it’s important to learn how to manage your money. Follow these steps to implement a basic budgeting plan:
- Identify costs: Write down your income streams and expenses and calculate how much you make or spend on average for each item on your list.
- Keep track of major spending categories: Examine how much you spend each month on categories such as rent, utilities, and groceries. Don’t forget to also account for discretionary spending, such as eating out or buying a new book.
- Look for areas to improve: Once you have a bird’s-eye view of your monthly cash flow, find places where you can cut back to save extra money.
Maybe you can cook at home more often than eating out at restaurants. Or perhaps there are free activities you can do in your area to spend less on entertainment. Use the savings you make to build an emergency fund, grow a nest egg, pay down debt, or even invest.
4. Pay yourself first
Without enough money for emergencies, you risk getting into a tough financial spot if an unexpected expense arises. If you don’t have cash on hand, you may charge the expense to your credit card or take out a loan, further impacting your finances by increasing your debt.
To bolster your savings, make sure to pay yourself first. This means setting aside a portion of your monthly paycheck to put into a savings account, so you don’t spend it elsewhere.
You may even automate this process so that it’s done before the money becomes available to spend. You could set up an automatic transfer from your checking account to a savings account. If your employer uses direct deposit for your paycheck, you may choose to split the deposit, with a portion of your paycheck going directly into a savings account and the remainder in your checking account.
5. Start investing as soon as possible
Investing your money is often one of the best ways to build wealth over time, assuming that your investments are successful. If you keep all of your money in a basic bank account, you risk devaluing your cash due to inflation. Investments are often a smarter way to save.
Invest in stocks, mutual funds, or exchange-traded funds (ETFs) to join the market as early as possible and take advantage of the power of compound returns.
For example, let’s say you invest $1,000 per month starting at age 30. With a 7% rate of return, you’d have over $170,000 after 10 years, $500,000 after 20 years, and $1.15 million after 30 years. The earlier you invest, the more time you have to earn compound interest.
There are two main account categories for investing money in the stock market:
- You can use tax-advantaged retirement accounts, such as an employer-sponsored 401(k) or an IRA.
- You can use one of the best brokerage accounts such as Stash, Betterment, or SoFi. Legendary investor Warren Buffett recommends beginning with a diversified portfolio by including ETFs that track major stock market indexes, such as the S&P; 500.
If you contribute to a 401(k) plan, take advantage of any employer match benefits on a portion of your contributions. The matched amount represents an immediate 100% return on your investment, so it’s worth maxing it out whenever possible.
You can also cherry-pick stocks, bonds, and other investment vehicles, although this may increase your risk and impact your investment strategy.
6. Increase your income
There’s only so much money you can save with the income you have. If you want to accelerate your debt payoff and increase your investment contributions, look for ways to make money and increase what you earn. For example:
- If you are content with your current employer: Consider asking for a raise or working toward a promotion. Speak with your manager about your career goals and find out what steps you can take to progress towards them.
- If you are open to looking for a new position: Consider taking a course or earning a certification that might put you in the running for a position with a higher paycheck. Make sure to negotiate any job offer before accepting it.
Aside from your primary income, you can also consider one of the best side hustles. Whether you drive for Uber, freelance online, or start a blog, there are many creative ways to turn your talent and entrepreneurial spirit into extra income.
7. Have the right mindset
If you’re used to financial struggle, you might not believe that becoming wealthy is possible for you. This limiting belief makes every other step much more difficult to achieve.
That’s why cultivating a wealth-building mindset is essential to learning how to become rich. It may take consistent, intentional effort to be successful and grow your wealth.
This isn’t to say that there aren’t inequities in society or that everyone begins at the same starting line. Some people face far bigger systemic obstacles than others, and some groups have historically been denied opportunities to build wealth and pass it down to their descendants.
But if you believe that becoming rich is impossible for you, you may not take the steps needed to achieve this goal. Cultivating an abundance mindset and letting go of limiting beliefs aids you in your efforts to build wealth.
How long it takes to become rich
Becoming rich means different things to different people. Some may feel rich by building a net worth of a million dollars or more. Others may be looking for financial freedom that lets them retire early. How long it takes to get rich depends on how you define “rich.”
The average age of millionaires is 57, suggesting that most rich people hit a net worth of $1 million or more close to their retirement ages. Rather than winning the lottery, many millionaires likely became rich by saving and investing for several decades.
Some retirement experts recommend saving enough to replace 70% to 80% of your pre-retirement income. So if you make $100,000 per year, you’d need $70,000 to $80,000 per year in retirement. Using a retirement savings calculator can help you determine how much you’d need to retire and when you can hit this goal.
While this becoming-rich approach doesn’t offer immediate gratification, and it may take many years to achieve, it can set you up for financial stability in your golden years.
FAQs about building wealth
What salary can make you rich?
Rich is a subjective term. While one person might feel rich making $100,000 per year, that salary would be a significant fall from grace for Kim Kardashian or Elon Musk. If we define rich as double the median national household income of $67,500 in 2020, then a salary of $135,000 or more would make you rich by this metric. When considering what salary would make you rich, it’s best to think about your specific situation and goals.
Can you become rich in 10 years?
You may be able to become rich in 10 years through a combination of saving money, increasing your income, setting up multiple income streams, investing, and just plain ol’ getting lucky. You can also learn how to start a business to take charge of your income.
Avoid get-rich-quick schemes. These schemes tend to be very risky, and while a few investors may make millions on these, many more people lose everything they invest.
At what age did Elon Musk become a millionaire?
Elon Musk became a self-made millionaire in 1999 as a 27-year-old entrepreneur when he sold a web-software company for over $300 million. He then became a billionaire at the age of 41. Musk says he owed $100,000 in student loans when he started his first start-up.
What is Budgeting?
In simple words, budgeting is a process of creating a plan for spending money. By devising this plan, you will get to know in advance whether you have the money to do an intended task or not. Budgeting facilitates you to prioritize and focus on the things that are important to you.
You can do budget forecasting or plan for 6 months or a year as per your need. That way, you know exactly when your low-income family is struggling financially, and when extra cash can be spent.
Useful Money Management Tips
We all know that one of the best ways to survive in this uncertain economy is by taking charge of your finances. That way, you also don’t have to worry too much if you’re going through tough times and have a low income.
Following are a few incredible tips that can help you in accomplishing future milestones.
● Think about Your Financial Goals
Before you get started on the ways to become rich, it is imperative to identify your goals. Everyone has different needs and desires and therefore has to plan a little differently.
Get a big picture of what you want. Do you have anything in mind about hitting a certain net worth? Is it crucial to pay off the debts or invest the money? Seeking the answers to such questions enables you to get a clear vision. Now break the bigger goals into smaller ones and then start planning accordingly. This roadmap will make sure that you are on the right path and help you to determine how to get to the destination.
● Keep Your Expenses to Minimum
Getting rich quickly occurs rarely. For most people, the key to becoming successful is getting things done at a slower pace.
One way of paving your path to becoming rich is by living below your means. Start by tracking your income and your expenses for a month. Try to keep all the receipts of all the items you bought in a month and figure out the items you can cut. Or to keep things easier, you can consider a paycheck stub maker that can give you a complete picture of your expenses. Spending a minimum amount is one of the basic and most useful tips that could help you make a realistic budget for your home.
● Start Investing
There are several other ways of getting passive income which is an ideal way to build your wealth. Keeping all your money in the bank is a good idea but the cash might undergo inflation.
To avoid this situation, it is better to invest a specific amount somewhere else. Mutual funds, bonds, and stocks are common modes of investment. So join the market and take leverage from compound returns. You may need to show some income proof when working on some investment modes. In these situations, the payment card manufacturer with all the details can help and check everything.
Investment always comes with risks. But if you know about the market well and are up to date about the investment modes, you can still win the game.
● Try to Have Multiple Income Options
Most of the money you earn will be spent on covering different expenses. So what about saving and investing? A passive income stream can help you build wealth slowly, like the rich do, even if you come from a low-income family.
Investments in private businesses or real estate are forms of passive income for which you didn’t work but it became a part of your earnings. Dividends and compound interest help you to slowly grow your income. Investing in real estate has more scope. Almost 90% of the richest people in the world get a handsome amount of money from their investments in real estate.
● Keep a Minimal Amount at Home
An expected expense or an emergency can take you to a tough financial spot in a low income household. If you don’t have cash in times of need, you will use a credit card or take a loan that can further put you in crisis or increase in debt.
While making a budget, it is crucial to take out a specific amount for emergencies or any other immediate expense. Deposit extra money in the savings account and other amounts in your hand. A savings account enables you to earn interest which is like a passive income and helps you grow money in a short time.
● Make Money Saving a Habit
When you have total control over your income and spending, now it’s time to start saving. Without knowing anything about money spending, you cannot get an idea of the areas in which you can cut expenses and save money. With a real photo in your hands, you will be able to make the right decisions.
Another way of saving money is to modify your daily routine a little. Maybe you can cook delicious homemade food rather than eat at a restaurant. Or you can do free physical activities outdoors to save money on entertainment.
Conclusion
Setting short-term goals that gradually move you toward your long-term objectives is the first step in learning how to become wealthy. Think about how growing your sources of income, saving money, paying off high-interest debt, and investing in the future could all help you become wealthy.
Even though it might take some time and effort to become wealthy, following these methods might help you gain control over your personal money and gradually increase your fortune. Discover the best investment apps to get started investing while learning how to make money.
