There’s no shortage of get-rich-quick schemes, from the latest crypto memecoin to flipping penny stocks. Don’t be fooled by their promises of easy wealth—schemes like these hide giant risks, and the vast majority of investors end up losing money.
Instead, spend your time learning how to build wealth, which requires you to make an investing plan and adopt a long-term mindset. Follow these eight simple steps to get started building sustainable wealth.
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8 Steps to Help You Build Wealth
- Start by making a plan
- Make a budget and stick to it
- Build your emergency fund
- Automate your financial life
- Manage your debt
- Max out your retirement savings
- Stay diversified
- Up your earnings
1. Start by Making a Plan
Building wealth starts with making a financial plan. That means taking the time to identify your goals and game out how you can accomplish them.
“Building wealth begins with a vision and a plan,” says Peter Cassciotta, owner of Asset Management and Advisory Services of Lee County.
Hiring a financial advisor is a great way to begin making your plan for building wealth. It’s a more expensive option, particularly for those who are just starting out, but choosing an advisor who’s a certified financial planner means you’re paying for planning experience.
Shopping around for a robo-advisor that also offers access to financial advisors may be a more affordable option. Check out robos like Betterment or Ellevest, both of which provide managed investment portfolios plus the chance to talk with advisors.
2. Make a Budget and Stick to It
Plenty of people dread the “b” word, but budgeting is a key plank in your wealth building strategy. Building a budget and sticking to it helps increase your chances of carrying out your plan and achieving your financial goals.
Budgets also help you understand where your money goes each month and prevent behaviors that can endanger your goals, like overspending.
3. Build Your Emergency Fund
When the furnace goes out or the refrigerator quits working, where does the money come from if you don’t have emergency savings? Lori Gross, financial and investment advisor at Outlook Financial Center says credit cards bear the brunt and cause you to incur extra costs and fees, like sky-high interest rates.
By building an emergency fund, you can protect your credit as well as reap the benefits of earning interest on an online savings account—all the while enjoying the peace of mind of knowing you have money in the bank to cover life’s surprises.
4. Automate Your Financial Life
By making saving, investing and bill pay automatic, you all but eliminate the chance you forget to set aside money for your goals or make progress on paying off your debts.
That’s why Michael Morgan, president of TBS Retirement Planning, recommends that you have the aggregate amount you’ve budgeted for each of your expenses and goals automatically deducted from your paycheck and applied to each expense.
This is especially valuable when it comes to saving and investing, he says. “By doing so, you resist the temptation to spend rather than invest. Soon, you won’t miss the money that is being automatically deducted and your contributions will be made on a regular basis,” he says.
5. Manage Your Debt
If you’re carrying a balance month to month, you aren’t alone: The average American has more than $90,000 in debt, according to Experian research.
Of course, not all debt is created equal—and some, like mortgages, may even be considered “good” debt, thanks to their general low interest rates and wealth building potential. Some experts even think of a mortgage payoff as a type of forced savings account because you’ll likely see at least a portion of your monthly payment back when you sell.
But if you’re rolling over a lot of bad debt, like high-interest credit card bills, every month, you may jeopardize your financial goals. That’s why it’s important to have a plan for your repayment, Gross says, with the ultimate goal of having a debt-free life.
If you aren’t sure how to get started, consider using the debt snowball or debt avalanche payoff methods. And remember: It’s possible (and often even advisable) to save money and pay down debt at the same time.
Then, as your balances fall, you’ll have even more money to put towards your emergency savings and investments.
6. Max Out Your Retirement Savings
Uncle Sam gives you a few different ways to save up for retirement, and experts encourage you to take advantage of as many as you can. That means putting the most you can toward your employer’s retirement plan—think 401(k)—as well as individual retirement accounts.
If contributing the legal maximum is going to be a stretch for you right now, make sure you’re at least saving enough to get any 401(k) match your company provides. That means if your employer offers a 3% match, you’re contributing at least 3% of your salary each pay period.
Don’t get discouraged if you can’t invest a lot to begin with. “Most of my clients invested a small amount of money for a long period of time,” says Casciotta. The power of compounding, then, helps turn these invested small sums into fortunes.
If you aren’t sure the best way to start investing within your 401(k) or IRA, consider a target-date fund or robo-advisor that manages a custom portfolio of funds based on the number of years you have until retirement.
7. Stay Diversified
If you’re clinging to the idea that people only become wealthy by having highly concentrated positions—perhaps by holding large amounts of Bitcoin—consider loosening your grip. Having a diversified portfolio with different types of investments can both protect the wealth you’ve accumulated and position you to reap rewards even in market downturns.
“A diversified portfolio includes a mix of assets that do not necessarily move in the same direction and in the same magnitude at all times and is designed to help reduce volatility over time,” says Veronica Willis, investment strategy analyst at Wells Fargo Investment Institute.
8. Up Your Earnings
While it isn’t a move that you can make at an online brokerage, investing in yourself by raising your income is an important step when it comes to how to build wealth. The more you earn over your lifetime, the more money you have available to invest.
“If you’ve been living comfortably on your current salary and you receive an increase, this is the perfect opportunity to begin the path to building wealth,” says Morgan, whether that means contributing more toward your retirement savings, paying down debt or bumping up your emergency fund savings,
In fact, financial expert Michael Kitces recommends you save at least half of every raise you get to position yourself for a secure retirement. This allows you to improve your quality of life gradually while also ensuring you don’t fall victim to standards of living that will be impossible for you to maintain in retirement.
If you don’t think you’re in the position to receive a raise, schedule time with your boss to determine what steps you need to take to advance in your current role. You may also consider picking up a side hustle or trying a passive income idea.
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How To Build Wealth From Nothing
Building wealth from nothing requires taking a deep look at your current situation. Evaluate your spending and income for the last several years. Where can you ruthlessly cut your spending? How can you increase your income? Depending on where you’re starting from, this may seem impossible and require out of the box thinking.
It’s easier to cut luxuries when you’re already spending on luxuries to begin with. If you lead a bare-bones existence, you may have to make radical decisions. Find where you can create room in your budget and invest the difference between what you spend and what you earn. Sensible investing over time is one of the easiest ways to grow wealth.
How To Build Wealth in Your 20s
It may not seem like it, but your 20s are one of the easiest times of your life to build wealth. Your income isn’t significant, but your financial responsibilities are lower. Ideally you don’t have children or other dependents to care for yet and all the extra expenses that come with them.
If you can manage to avoid lifestyle creep and maintain a low standard of living in your 20s, you can invest the rest of your income. You also may have freedom of geographic movement to pursue high paying jobs in low cost of living areas, especially after the remote work revolution of the last several years. Investing early on helps you benefit from decades of your money working for you through the magic of compound interest.
How To Build Wealth in Your 30s
Building wealth in your 30s comes with many of the same advantages as your 20s as well as the added consequences of the choices you made in your 20s. You may have debt you need to address or expensive habits your income doesn’t support. Your wages may have stagnated by remaining in the same position at the same company since graduation.
If you’d like to build wealth in your 30s, you still have plenty of time in which to do so. Take a hard look at the choices you’ve made so far and determine areas for improvement. Maybe it’s time to get rid of the daily take-out lunch habit or to downgrade your car from a brand-new SUV lease to a 15-year-old hatchback. It could be time to take professional development courses or earn free certificates online to pursue career—and salary—advancement opportunities.
How To Build Wealth in Your 50s
Your 50s can be a great time to build wealth—your income is likely the highest it has ever been. Unfortunately, if you’ve made it to your 50s without having wealth already, you’ll have to consider the circumstances and choices that have gotten you to your current point. Some of these may have been out of your control, like caring for a special needs child or dealing with a chronic illness yourself.
Looking back can be scary but the point of this exercise isn’t masochism, it’s determining where you can make changes to improve your situation. While working with a professional can help, you don’t have to share your financial skeletons with anyone. Nobody else has to know you spent $40,000 on shoes like Carrie Bradshaw, but you have to know where your money has gone and determine if that’s where you want it to keep going.
Bottom Line
To build wealth you have to invest the difference between your income and your expenses. Or get adopted by a billionaire. The latter is less likely to happen, so while you wait to run into an oil tycoon with no offspring it’s best to focus on decreasing your expenses while increasing your income.
How you do that depends on your individual circumstances, but it may require learning new things or making big changes to make a big difference. If you’re living paycheck to paycheck, you won’t magically build wealth by doing the same thing you’ve always done.
Frequently Asked Question (FAQs)
How do you use home equity to build wealth?
You can use your equity in your primary residence to invest in other properties. Over time you can build an impressive real estate portfolio even if you don’t have current cash to put down by repeatedly tapping your home’s equity and then refinancing the other properties you’ve purchased.
Real estate investing can be an easy way to build wealth or to lose everything. Before risking the roof over your family’s head, you should make sure that you can afford to continue to pay the mortgage of your home plus home equity loan payments plus mortgage(s) on any new properties even if you have no rental income coming in or the new properties don’t sell as quickly as you anticipated.
How do you use debt to build wealth?
While using debt to build wealth is a common trend on Youtube and TikTok, it’s not a good idea for the vast majority of people. Extremely wealthy individuals use debt—called leverage when you’re rich—to reduce their taxes and preserve their assets.
Taking a loan against a significant investment portfolio or stock options allows the mega-rich to reduce their income and tax burden, while allowing their investments to grow at a rate greater than the interest rate they are paying on the loan.
For average people and even the upper middle class, using debt to grow wealth is usually not smart. For example, taking out a payday loan to buy Bitcoin is equivalent to borrowing from the mob to put it all on black at your local roulette table. You could win big, but odds are that you’ll just end up further in the hole.
How do you build wealth for your child?
Building wealth for your children is easy because they have the magic of compound interest working in their favor. To start, you can make sure that you contribute at least enough to their 529 plan to qualify for the full $35,000 529 plan to Roth IRA conversion limit. If you do this, they’ll have millions in tax free dollars by the time they reach retirement age.
There are many ways to build wealth for your child. You can purchase investment properties for them, contribute to a stock portfolio for them and fund a high quality education towards a career with high salary and employee satisfaction.
While building wealth for your child don’t forget to teach them important life skills like how to manage their money and prioritize their spending. All the planning and investing in the world won’t give your child a lifetime of financial stability if the second they get access to funds they spend it all on cars and trips to Vegas.
How do you use life insurance to build wealth?
Extremely wealthy families use life insurance to build and transfer wealth so they can reduce and avoid estate taxes. You may think what’s good for the goose is good for the gander, but federal estate taxes only come into play for estates over $12.92 million in 2023.
For the vast majority of people, combining your life insurance with an investment account through something like an indexed universal life insurance policy is an inefficient and expensive way to build wealth. These policies are typically only the best option for the person who will get a fat commission check by selling the product to you.
