There is no sure-fire way to become rich. (If there was, I wouldn’t be writing this article — or at the very least, I’d be writing it from an island retreat, not a coffee shop.) But thereare things you can do to increase your chances of accumulating wealth. These things aren’t all sexy, ride-around-in-a-convertible fun. But if you want to have a bank account that’s full to the brim, here’s what you need to know.
1. You Need to Invest
Investing intimidates many of us. And yes, there are ways to get rich other than investing. But on the 2013 Forbes Billionaires List, the largest section of billionaires — 148 folks total — made their wealth through investments. Whether they’re in stocks or something like real estate, not only do investments give you an opportunity to make a large amount of money, but they also help you generate passive income — money that comes in without you doing any direct work. After all, there are only so many hours in the day that you can actively earn money — so it makes sense to put your money to work for you.
2. You Need to Start Now
When you save and invest, you earn interest. And while that interest is great, what really helps your money grow is compound interest. Basically, the interest you earn also earns interest, and so on. Over the course of your lifetime, this can make thousands — or even millions — of dollars of difference. Basically, the earlier you put money to work, the more work it can do for you.
And starting now doesn’t just apply to investing — you should start working early, too. Many rich people are talented, but they also work very, very hard to develop their skills. The sooner you start developing your skills, the more prepared you’ll be when an amazing opportunity comes your way.
3. Making Money Is Hard Work
I know — I’ve already brought up hard work a few times. But wealthy people do a lot of work. Wall Street Journal writer Rob Frank cites a study noting that people who earn over $100,000 a year spend less than a fifth of their time on leisure. And according to Tom Corley, the author of the site Rich Habits, most wealthy people also wake up three hours before their day jobs start to — yup — do more work.
4. You’re Probably Spending Too Much
Every dollar you spend is a dollar that you could have put to work earning that sweet compound interest. I’m not saying that you shouldn’t spend some of your money now — I believe that money is a tool that helps us do things that make us happy. But if you’re serious about becoming wealthy, remember, once again, the magic of compound interest — the more money you put to work, the more it can do.
5. You Need to Make More, Not Just Spend Less
One way to define frugality is “using your money with intention.” Meaning, frugality is about spending money on things that really matter to you. In that sense, basic frugality advice — like making coffee at home instead of buying it at a coffee shop — is great. You can put that coffee money towards something else that matters to you more.
But, while frugality can help you save, it simply won’t make as big of an impact on your life as making more money will. As Ramit Sethi, author of the website I Will Teach You to Be Rich says, “There’s a limit to how much you can cut back, but no limit to how much you can earn. In fact, as you cut back on spending, it gets increasingly harder, but as you earn more, it gets increasingly easier.”
6. Even When You Start Amassing Wealth, You Need to Stay (at Least Somewhat) Frugal
It might not seem like this is the case when you look at extravagant displays of wealth, but many of the world’s wealthiest people are also frugal. Billionaire Berkshire Hathaway founder Warren Buffett has lived in the same five-bedroom house since 1958. The founder of Ikea takes the bus.
The lesson isn’t that you have to adopt a life of extreme frugality, carefully rationing out your toilet paper. But you do need to maintain a sane relationship with money. Don’t let lifestyle creep (when your spending grows to match your income) take over. Instead, use your money to do some things that make you happy, invest some of it, and for goodness sake, don’t spend it all.
Do You Really Want to Be Rich?
I’d venture that many of us don’t want to be rich. What we really want are the things that money can buy us — freedom, flexibility, security and interesting experiences. But you don’t need massive amounts of wealth to get these things. You need balance, planning and goals. And if you focus on achieving those things, you’ll be much happier than if you just set out to be rich.