What does it mean to be rich? Why do you want to have a lot of money, and what are you willing to do to make that happen? How do you get rich from nothing? Everyone wants money but the reality of it is that it requires work, usually starting a successful business or perhaps becoming a famous actor, an athlete or writer. There are many ways to get rich. There are many important questions to ask yourself before you embark on the journey of increasing your wealth.
For some people, being rich means living a modest but comfortable life without having to worry about not having enough money to make ends meet. Others define rich as having millions of dollars in the bank or stock market and homes all over the world. The only definition that truly matters is the one you create for yourself.
Your Motivations | How to Get Rich From Nothing
Before you can start chasing your financial dreams, it is important to know why you created them in the first place. If you skip this step, you are more likely to give up on the goal of becoming rich when you realize it can be stressful and takes a lot of work. Taking some time for honest self-reflection now will provide the motivation you need to sustain your momentum later. Here are some common reasons people express for wanting to accumulate wealth:
- Ability to retire early
- Not having to experience the stress of wondering how to make ends meet each month
- Desire to leave an inheritance for children or grandchildren
- Desire to donate to charity or start a charitable foundation
- To pay for children’s college education so they do not have to take on debt
- Travel the world
- Have greater control over their own lives
So, what is it for you? Will it be enough to keep you going when you must sacrifice your free time to achieve your goal? Do you have the discipline to say no to large purchases now because they would put you into debt and slow your path to becoming rich? Please consider these questions carefully as we move on to discuss the first step towards becoming a rich person.
Get Out of Debt as Fast as You Can
Accumulating wealth is difficult when you are paying thousands of dollars in interest to lenders each year. The typical American has nearly $25,000 in debt, not including their home mortgage. Those who carry student loan debt fare even worse.
More than half of adults in this country spend more than they earn every month and have no savings to fall back on in case of emergency. They feel trapped in a paycheck-to-paycheck lifestyle. Almost as quickly as they receive a paycheck, they use it to pay bills and buy necessities. They are then out of money until the next payday when the cycle repeats itself all over again.
If you are tired of having too much month left at the end of your money, you have no choice but to increase your income. Getting a part-time job, selling items you no longer need, or freelancing your skills online are just some options. You are ready to start paying down your debt once you have added to your monthly income. We recommend taking the snowball approach, which goes like this:
- List all debts you owe from smallest to largest
- Put any extra money you have towards paying off the smallest debt
- After paying off the first debt on the list, move onto the next one
- Continue making extra payments towards your debts until you have eliminated them and do not take on more debt in the meantime
Preparing and sticking to a budget can also help you get out of debt faster. The process does not need to be painful or limiting when you think of budgeting as a blueprint for your greater financial freedom in the future. You can find several sample budget plans online.
Start to Change the Way You Think About Money
Most kids do not learn financial literacy from their parents or teachers. Because of this, they grow up thinking that the only way to earn money is to sell their time and labor for a paycheck. However, you alone are responsible for the way you manage money once you become an adult. The old saying “What you make does not matter as much as what you keep” should become a new rallying cry if you ever hope to become financially independent.
Once you have paid off debt, it is time to shift your focus to saving and investing money. There is no shame in only being able to put a few dollars a month into a savings account at first. The important thing is you are developing a habit that you can add to as you take in more money.
Keep in mind that you will likely need to sacrifice to free up money for saving and investing. You can start by reviewing your budget and cutting out most things you do not really need. Here are examples of several items you may be able to cut from your budget right away:
- Automatic monthly renewals: Do you pay for a gym membership you rarely use or a subscription fee for a magazine you have not picked up in months? If you are like most people, the answer to this question is yes. You may even be paying monthly service fees for services you forgot you had. Making a list of your automated monthly renewals and cancelling the ones you rarely or never use is a fast and easy way to free up more of your funds.
- Cable or satellite TV: Paying a monthly subscription fee just to watch a few of your favorite shows is not a good use of money. You might consider canceling your service and opting for on-demand streaming services instead. That way you only pay to watch the movies or programs that matter to you.
- Credit card interest rates: A common tactic among credit card issuers is to entice customers by extending an offer to transfer their balance from another credit card and pay no interest for a specified time. You can use this to your advantage with your current card holders by asking them to lower your interest rate to keep you from transferring your balance elsewhere.
- Eating out: You pay several times more for the same food you could make at home when you order it at a restaurant. Try eating only home-prepared meals for 30 days to see how much you can save.
- Insurance premiums: You may be eligible for insurance discounts you are not taking such as being a good student or a claim-free customer. Call or email your agent today to find out what discounts your insurance company offers and whether you are eligible for any of them. You can also save money on insurance by increasing your deductible to lower your premium or bundling different types of coverage with the same carrier.
While cutting out unnecessary or extravagant expenses will help you reach your financial goals faster, be sure to allow yourself to have fun once in a while. If saving money and reducing expenses feels like drudgery, you are less likely to continue working towards your goal of financial independence.
Overcome the Fear of Investing
The biggest difference between people who barely scrape by most of their lives and those who live comfortably is that people in the latter category make their money work for them. They study the investment market and put money into promising stocks as often as they can. Others find the stock market too intimidating to start an investment portfolio. They might also assume they do not make enough money to exercise an option that is available to everyone. These are both solvable issues.
The best way to learn about investing is to sit down with a financial advisor, but this is not completely necessary if you lack the funds to hire one. Just try a simple Google search like “investing basics for beginners” to find numerous free resources on how to start. Remember that any amount invested is better than nothing. Just as with starting an emergency savings account, the key is making it a habit.
You may need to remind yourself several times that building wealth takes time. One problem Americans have with saving and investing is that they want to enjoy any money they have left over after paying the bills right now. However, the future will not just take care of itself. The decisions you make about spending, saving, and investing will impact you for the rest of your life.
Other Ideas for Building Passive Income
Investing in the stock market is probably the most well-known source of creating passive income, but it is far from the only one. The most financially successful people have multiple sources of income in addition to their regular job. Having several income streams provides you with valuable peace of mind because any one of them could disappear at any time. You set yourself up for financial independence when you do not rely solely on a single source of income. Here are some additional ideas to consider for building passive income:
- While real estate is a hot market, renting to others can be more hassle than it is worth. From late rent payments to having to evict tenants to late-night phone calls to fix a broken water pipe, the reality is often much different than the expectation. Investing in land or real estate through crowdfunding or purchasing a home to sell for profit can be a better use of your time and financial resources.
- Earn interest on money you lend to others through peer-to-peer lending. Several peer-to-peer lending programs exist online, and all you need to do is sign up for an account and determine the amount you want to lend. You receive your initial investment back plus interest when the borrower pays the loan in full. You can earn higher interest from borrowers with less than ideal credit, but you need to weigh that against the risk of them defaulting on the loan.
- Do you consider yourself a subject matter expert on any topic? If so, why not write an eBook and earn royalties every month? Amazon is just one of several large companies that allow people to self-publish and start selling their books immediately.
- If you have any extra space available in your home, consider listing it on Airbnb. This has become a popular option because private homeowners typically charge less than hotels and many people prefer to be in a home environment. Unlike renting an apartment to someone, Airbnb guests have shorts stays and must pay for their reservations in advance. However, you will need to ensure the rental area stays clean and well-maintained.
- You can make money from affiliate marketing if you have a blog or website that receives a decent amount of traffic each month. For the best results, the links you choose to post should relate in some way to the products or services you sell or the topic of your blog.
- Create an online course and list it on a platform where people go to learn more about topics that interest them. You will need to invest the time upfront, but you earn money every time someone purchases your course once it goes live.
- If you have decent technical skills, consider creating and selling a smartphone application. As with eBooks and online courses, you earn money with every sale.
Study Wealthy People You Admire to Learn How They Got Rich
Whether the person you admire got rich in the stock market or by creating a must-have product, you can learn a lot from their story. Take the time to research their life history to see how they started accumulating wealth in the first place. You should start to notice familiar themes of self-sacrifice and starting with little but ultimately succeeding due to an unwavering commitment to achieving financial independence. Here are just two examples:
Jeff Bezos, CEO of Amazon
At age 57, Jeff Bezos is the richest person in modern history with a net worth of $200 billion dollars. He expects to step down as CEO sometime after September 2021 to become Amazon’s executive chairman instead.
Bezos graduated from college in 1986. From then until 1993, he worked at a telecommunications start-up company, as a product manager in the banking industry, and as senior vice president of a new hedge fund company. He decided to leave each of these positions behind to start an online bookstore he named Amazon in 1993. His parents provided him with $300,000 to invest in the company. He also quickly opened up Amazon to investors, although he warned them Amazon had a 70 percent chance of failure.
Bezos took Amazon public in 1996 and soon overtook large book retailers Borders and Barnes and Noble. Amazon earned $57 million in equity offerings in 1997, which Bezos used to aggressively buy out smaller competitors. The company nearly went bankrupt in 2002, forcing Bezos to layoff 14 percent of the staff. Amazon rebounded by the next year and posted a $400 million dollar profit.
Jeff Bezos was never one to be content with what he already achieved on behalf of Amazon. Over the years, Amazon has expanded to offer nearly any product a consumer could want to buy. Amazon also created Kindle, its own reading device, and Alexa, its own personal assistant powered by artificial intelligence. The company has succeeded by staying ahead of trends and being one of the first to introduce new technology. In early 2018, Jeff Bezos overtook Bill Gates, the founder of Microsoft, as the world’s wealthiest person.
J.K. Rowling / Writer / Creator of Harry Potter Series
55-year-old Joanne Rowling, who goes by the pen name J.K. Rowling, is the author of the wildly popular Harry Potter book series. Her books have sold more than 500 million copies and have earned the distinction of being the best-selling book series in history. Movie producers have turned several of Rowling’s books from the Harry Potter series into movies with her oversight. Rowling also writes crime stories under the pen name Robert Galbraith.
In 1990, when Rowling was 25 years old, she came up with the idea for Harry Potter and the Philosopher’s Stone while waiting for a train to take her from Manchester to London. She lived in near-poverty conditions for the next seven years until publication of the book in 1997. Rowling would go on to write six sequels for Harry Potter in the next 10 years. She has also written several books for adult readers.
Forbes Magazine named Rowling the world’s first billionaire author in June 2020. However, Rowling quickly lost that status by donating much of her wealth to charity. Her net worth in her home country of the United Kingdom is £795 million, which equals over 1.1 billion in United States dollars. She is the 179th wealthiest person in the United Kingdom. From living for seven years as a struggling single parent to where she is today, Rowling’s secret to success is that she never gave up on her dream.
Want to Be in Charge of Your Time and Income? Start Your Own Business
Working for someone else can give you the stability of a steady paycheck, but all your hard work goes to making them rich and not yourself. Although becoming a business owner can mean earning unlimited income and setting your own schedule, you need to go into it with realistic expectations. Launching a new company means working many more hours than you did for your employer, often without seeing a profit for at least a few years. Even so, the payoff can be great if you are able to persevere.
How to Evaluate a Business Idea
Before you can start selling a new product, you need to know who will buy it. This involves creating a customer persona of the type of people you expect to serve based on market research, personal observations, and feedback you have received from test users, colleagues, and mentors. Consider compiling the following demographics and working them into your customer persona:
- Age group
- Education level
- Geographic location
- Marital status
- Number of children
Once you have a deep understanding of your target audience, the next step is to conduct market analysis to determine the size of your potential market. You also need to understand market saturation since it will tell you if there is even a demand for your product. Assuming there is, arrange a small focus group to learn more about your future customers and what they would like to buy from your new company.
You will need to spend considerable time researching the competition. Figure out how much competition you have and determine to do a better job right off the bat. Every company needs a unique selling proposition to distinguish what makes its product better and different than similar items sold by the competition. Take time to research the strengths and weaknesses of your competition by visiting in person, reading online reviews, and speaking with their customers.
The final step in determining if you have a realistic business idea is to run a financial analysis. You should know your start-up costs and where you will get the money to pay them. Be sure to include initial and ongoing business expenses along with projected revenue and how long you expect it to take to turn a profit.
You do not have to give up on the idea of launching your own company if you discover that your business model is too risky since you can always go through the process again. If your research uncovers that you have an identified audience, a small to moderate amount of competition, and a realistic financial plan, you should be ready to move on to raising start-up capital.
The standard advice to create a detailed business plan before launching a new company has become outdated. Today’s entrepreneurs are more likely to create something called a pitch deck that includes 15 to 20 Power Point slides. The purpose of a pitch deck is to introduce a company’s leadership team, products, and technology to potential investors. Remember that you have a short time to capture the attention of investors so you must get right to the point. Be sure to include this information in your pitch deck:
- Summary of the company
- Mission and vision of the company
- Introduction of people in key leadership positions
- Problem your company will solve
- Solution your company will offer and why it is better than anyone else’s solution
- Size of potential market for the product
- Description of the product
- Demographics of prospective customers
- Technology your company will use
- Identify the competition
- Early customers and partnerships your company has attracted
- Your proposed business model
- Marketing plan
- Indicate how much capital you are trying to raise
Each slide should include visually compelling images and graphics that support the words. You should also plan to perform a demonstration of your product at the same time your present the pitch deck.
Keep in mind that you cannot cover everything and should not try to. That means you need to avoid having too many words on a slide and providing detailed financial information upfront. There will be time for prospective investors to ask these questions later, so be sure you have bring accurate financial projections with you.
Making More Money Will Only Matter if You Can Control Your Spending
People sometimes assume that making more money will solve all their life problems, only to find themselves deeper in debt with a higher income level. Another old saying about money is that it acts as a magnifying glass. What this means is that taking in more money each month will review your true spending habits whether you want to admit them or not. People making over $100,000 per year can live from paycheck to paycheck just as easily as those making $25,000 a year.
The bottom line is that becoming wealthy takes a lot of work and discipline. You cannot just wish for it to happen and then feel upset when you find yourself in the same position five years from now. Remember that making a goal and not following it up with a plan is only a wish. Becoming wealthy takes one small action after another, so you might as well take the first step today.