Becoming wealthy is a dream for many. Fortunately, it's a dream that is well within reach. If you want to end up with a large bank account balance and the financial security you deserve, three steps will get you there. Here's what they are.
1. Focus on increasing earnings
One of the first and most important things you need to do if you want to be rich is to focus on increasing how much you earn.
Far too many people get hung up on trying to reduce spending to build wealth. This is really hard to do. You can only slash your spending by so much even if you make draconian cuts to your budget. You're still going to buy necessities. It's also hard to sustain a strict budget for years to build wealth.
If you focus on increasing your income, though, there are no limits to how high you can go. Developing new job skills, negotiating your salary and raises, starting a side business, or forming a successful company of your own could potentially enable you to gain access to much more money that you can use in your wealth-building efforts.
For me, personally, over the past few years, I've been able to triple my income. This has given me tens of thousands of dollars each year to use toward future financial goals. I wouldn't have been able to come close to reducing my spending by that much. I accomplished this by honing my skills within a particular niche, and you can look for opportunities to do the same.
2. Invest steadily
The next key step is to invest regularly. This enables you to put your money to work for you so you can earn returns that grow wealth.
If you are investing, the returns you earn can be reinvested and you can benefit from compound growth. The money in your brokerage account helps you get richer without you having to work for every dollar you earn. And the more time you have for compound growth to work, the more powerful the impact.
Say, for example, you invest $5,000 a year for 30 years and earn a 10% average annual return. That investment will turn into $904,717.12. You would have invested only $150,000 during that period, so all the rest of that money would have come to you because of your investments.
Investing doesn't have to be difficult. You can open a brokerage account and put your money into an S&P 500 index fund. This would mean it tracks the performance of the Standard and Poor's financial index of around 500 large U.S. companies. The S&P 500 has consistently produced 10% average annual returns, and finding an S&P fund is as easy as using your broker's ETF screener.
3. Spend smartly
Finally, the last step you need to take is to be smart about spending. This doesn't mean living a life of deprivation, but you need to make sure you aren't spending all that you earn so you have money to build wealth. And ensure your spending aligns with your values -- the money you spend should enhance your life.
It's a good rule of thumb to keep fixed expenses to 50% of your income, save 20%, and spend the rest. If you do that, you should be in good shape to build wealth.
By taking these three steps, you can get on the path to financial prosperity. Get started today by researching salary data for your field to ensure you're being paid fairly or identifying a new job skill you can learn. Consider opening a brokerage account if you don't already have one, and take a look at your budget. You'll be glad you did when you find yourself with a nice nest egg in a few decades.
