We often read or hear stories about people who were not born rich but managed to become financially successful all on their own and we wonder aloud how they did it. How do people become wealthy? What steps did they take to get to where they are today? Is it also possible for me to become financially successful? If yes, how can I become wealthy?
How we wish we could all be wealthy. We all wish that someday we might turn our lives around and eventually become millionaires. However, becoming wealthy may seem like an elusive concept that is unattainable for most of us. Becoming wealthy seems like a big impossibility which feels more like a dream rather than a realistic goal, especially with the mounting costs of day-to-day life.
But what if I told you that there are simple steps you can follow to start building wealth today no matter your financial circumstances? You don’t need large inheritance or make a six-figure income in order to build wealth and secure a better financial future for you and your family; you don’t even need to win the lottery.
7 Simple Steps You can Do to Build Wealth
1) Have a steady source of income.
Having a steady cash flow or income is the key to becoming wealthy. Before you even begin thinking about saving and investing, you need to have a steady source of income. Because if you have no income, you have no money to save or invest.
Basically, there are two types of income: earned or active income and passive income. But Robert Kiyosaki, author of “Rich Dad Poor Dad” says that besides the two, there’s also what he calls portfolio income. But in this article I will be dealing only with active and passive incomes.
a. Active income – comes from what you “do for a living.” In other words, this is what you get from your full-time time job where you work 9-5. You exchange your time and effort for a salary or wage.
We were taught at a young age that we should go to school, study hard to get good grades, so that we can get a high paying job. So we strive hard to become doctors and lawyers because these professionals make a great salary. As great as this may sound, these professionals have to put in their time and expertise in exchange for their salary.
b. Passive income – this is the opposite of active income. It comes from some properties you own that you lease to tenants and you usually get paid on a monthly basis.
2) Get out of debt and stay there.
Debt is a serious threat to your financial security as it keeps you from making the most of your money. Every penny you spend on debt payments could be stashed away for emergency fund, for your kids education or for your retirement fund. Being debt free will enable you to work hard towards becoming financially secure.
The use of credit cards is one important component of your financial life but it can also be the end of your financial well-being. Be responsible in using credit cards if you want to succeed in your finances. Most people use credit cards to purchase unnecessary items thereby putting themselves in severe debt. You must always remember that when you use credit cards you are borrowing money that you have to pay back.
3) Establish a budget and good saving habits.
A budget is simply an estimate of income and expenditures for a given period of time, usually monthly. While many people are turned off by the term “budget” as they seem to associate it with restrictions, budgeting is one of the biggest keys to managing your money. When you establish a budget you will be able to monitor how much money you’re spending on certain items and services so you will have control over what you spend. Setting a budget will force you to keep track of your progress in reaching your financial goals and to make your dream of becoming wealthy a reality. Having a budget ensures you don’t spend money you don’t have.
Having a budget is also a great way to save money because when you budget you assign your money to do certain things, which in turn allows you to automatically put money into your savings account each month. When you have a monthly budget, you will not be forced to dig into your savings and you can begin to build wealth to give you true financial freedom in the future.
Most people suggest an ideal percentage allocation for your income to be: 70-20-10. 70% of your monthly income goes to your monthly expenses including bills, food, etc., 20% goes to your savings and investment and the remaining 10% goes to God and His works. After all, God is the source and giver of all things including wealth (Romans 11:34-36).
4) Live and spend within your means.
Your “means” is your income and living within your means is to spend less on your lifestyle than you generate in your earnings. You’ve got to recognize that not everyone earns the same income which means not everyone can afford to spend the same. One who makes $10,000 a month can afford to spend more and buy expensive things compared to the one who only makes $3,000. You should know your “means” so you know how much money you can spend. And never, ever buy things your can’t afford!
There is nothing wrong with spending the money that you have, but spending money you don’t have is disastrous. When you spend money you don’t have, you will eventually be buried in debt making your goal of becoming wealthy nothing but a dream.
5) Buy only assets, not liabilities.
Knowing the difference between assets and liabilities is one of the keys to winning the game of accumulating wealth. Robert Kiyosaki in his book Rich Dad Poor Dad gives a particular definition for each one of these. He defines an asset as anything that puts money into your pocket while a liability is anything that takes money out of your pocket.
According to Kiyosaki, the biggest mistake that the poor and middle class people make is spending their lives buying liabilities instead of assets. He said that if you’re serious about becoming wealthy you need to spend your life buying assets. You should only buy things that make you money, not things that make you owe money.
Most people think that a house and a car are assets but they’re not! Your house and your car don’t give you money. On the contrary, you have to pay for your house mortgage and car loan. So they are liabilities, not assets. A good example of an asset is income generating properties such as an apartment or condo units. If you have a house or a condo unit that you’re not using, you can rent it out so they can put money into your pocket. These properties can bring continuous cash flow thus making wealth building possible for you.
6) Delay spending gratifications.
When it comes to impulse buying, most people are pretty bad at practicing self-control. When they see something they want, they want to have it immediately. That’s the problem we have today. We live in a society where people want things and want them now. Some people even resort to borrowing money just so they’ll be the first to own the latest iPhone model among their colleagues.
Delayed gratification means the ability to put off acquiring something mildly fun or pleasurable for now in order to have something more fun, pleasurable or rewarding later. Being able to delay spending gratification is a skill you must acquire on your road to becoming wealthy.
If you are not able to acquire this skill then you will never be able to acquire true wealth. It may take you sometime to adjust and form smarter spending behaviors especially if you are used to buying what you want when you want it but it’s extremely important to exercise smart spending habits so as not to compromise your financial security just to get something immediately.
Delaying gratification is perhaps one of the biggest factors for creating wealth. Many studies show that those who tend to be more frugal and live less opulent lifestyles than their peers even though they can afford it are able to accumulate wealth. Therefore, be mindful about your spending habits and delay gratification until such time that you have the means to cover the cost.
7) Invest some of your money.
Saving is not the same as investing. Saving is simply putting your money in the bank as savings, checking or money-market accounts for safe-keeping.
Investing is the act of putting your money or capital to an endeavor expecting to obtain an additional income or profit. It’s not keeping your cash in a savings account to earn very little interest but putting it into a well-diversified portfolio of stocks, bonds, mutual funds and ETFs and allowing the growth to compound over the long term.
Compounding is when the earnings from your investments create additional earnings, that is, the interest you earn on your money also earns interest, thereby making your money grow exponentially. And that is why compounding is arguably the most effective way to build wealth.
Aspiring to become wealthy is not wrong. Many people, including pastors, tell us that wanting to become rich or wealthy is wrong for a true Christian. They say that a true Christian should strive to have just enough to get by and should give the rest of their riches to the poor. But throughout the centuries, God has blessed some people materially like King Solomon (2 Chronicles 1:11-12) and Jehoshaphat (2 Chronicles 17:5).
Bottom line is that it’s perfectly alright to become wealthy. The Lord is not against wealth for He has blessed some with it. But He is definitely against the unethical acquisition and wrong use of it. And when you become wealthy, learn a lesson from King Solomon’s verdict on the abundance of wealth (Ecclesiastes 2:11). Do not let wealth get in the way of your devotion to God. Rather, serve God with your wealth and help the needy.