April 21, 2015

6 Smart Ways to Get Rich

Read more about Build Wealth in Your 20s

How to get rich? Who isn't interested in the answer to that question? Let's be clear right now, there is no magic bullet, and forget about getting to the golden palace quickly. Overnight wealth is the stuff of movies and maybe even illegal activity, neither of which does you any good.

We’re here to tell you how to do it over time, with realistic steps along the way. So, if you want lasting wealth, here are some strategies to get there.

1. Think tortoise, not hare.

Wasn’t the morale of that fable: slow and steady wins the race? The same goes for wealth. Patience is a key virtue for accumulating wealth. Just don’t expect the ride to be sexy or glamorous. Instead of think basic, standard - dare they be called “boring” - practices that have proven to work over time.

Tip: Getting Started in Investing

For starters, how about saving 5-15%, at least, of your earnings from each paycheck. Ideally, have it pulled automatically so that you’re not tempted to do something else with it besides investing it. You want to invest that money into a mix - stocks, bonds, and alternative investments, perhaps like Real Estate Investment Trusts (REITs). If you’re not at the point where you can do such investments on your own, be sure your 401(k) or other retirement vehicle has a balanced mix.

Another issue to consider that could test your patience: Don’t go after fads. You don’t want last year’s top mutual fund, ignore the “hot tip” from your brother-in-law who knows an investment “guru,” and generally drown out the noise about this hot stock and that hot stock. Instead, spend the time researching companies, mutual funds, and other investment vehicles. Also pay attention to everyday trends, what’s going on in the world, and in your world, not necessarily what’s the big chatter on CNBC this morning. Think and act for the long term.

To help you along this path, you also need - guess what? - a budget. There can be no wealth without discipline. If you’re not willing to sacrifice today for a better tomorrow, you’re destined to live paycheck-to-paycheck or perhaps a little better than that, but you certainly won’t come close to rich.

Tip: 10 Smart Ways to Save $1,000 a Month

2. Avoid avoidable debt

Few things destroy financial dreams like debt. Once you dig a deep hole of excess interest charges and late fees, it can take years to climb out, and that’s lost time and capital that could have been invested elsewhere.

Instead of viewing credit cards as free money (which they aren’t), only view them as a convenience tool. You should always aim to pay off your balance each month, and when you know you won’t be able to, then switch to a card with an introductory period of 0% interest or a generally low-interest card. And learn to say no to yourself. If the amount of debt you’re carrying is giving you stress and interfering with your ability to save, you need to rethink how you use it and how you view it.

When you do debt, do it smart and with a plan. For example, some people take advantage of those 0% interest rate cards to buy undervalued assets (such as merchandise from the movie Frozen before anyone realized how successful that movie would be and how valuable those toys would be) and sell them at a profit. They pay off the money before the intro period expires and they walk away with their chest puffed out for having gotten the better end of the deal.

Only take on debt when you really need to and when you have an exit plan.

Tip: How to Get Out of Debt

3. Be entrepreneurial

Truth is, the majority of us will only do so well when we are working for someone else. Unless you are at the very top of a mega corporation, there’s only so far you may go. The ones who realize their limitations look for other ways, beyond their employer, to expand their skills and their income. This may mean a side hustle, a second income stream that can be dedicated to building wealth. What talent, hobbies, and skills can you use to “moonlight”? Or it could mean spending those moonlight hours in training, by taking on another set of skills on the side to set yourself for a more bountiful career down the road.

There could be another world, outside of the daily grind you’re currently riding, that could produce not only extra or better income, but happiness and a fuller future. Open the door and possibilities materialize.

Tip: Signs You Are an Entrepreneur

4. Tame taxes

For sure, if you want to be wealthy you have to know how to handle Uncle Sam. Legally minimizing taxes is essential. Work with a financial advisor if you can afford it or brush up on some basic tax advice to make sure you’re doing all your can to lower your taxable income. This means seeing if you qualify for a home office deduction (if you go the entrepreneurial route); looking into whether you can deduct some of the miles you put on your car for business purposes; contributing as much as you can to your employer’s 401(k) plan (all those funds are set aside tax-free until you withdraw them years from now); and, of course, keeping careful documentation throughout the year. Come tax time, you could be surprised at the deductions you could take as the possibilities do change at the state and federal level.

Related: Best Roth IRA Accounts

5. Develop a plan

Create a plan for positive cash flow. The only way to get there is to get a handle on what stage of wealth you’re currently at - how much are you taking in each month and how much are you spending? Then create a one-year vision. Break up your vision into quarterly milestones to pace yourself and keep on track. Set a goal for the monthly income you want in a year’s time, calculate the increase, multiply by three and add it into the quarterly milestones.

Tip: How to Build Wealth in Your 20s

6. Check your mindset

Being rich is thinking rich. People can generate greater wealth by focusing on their mind first, money second. If you have a “lack of scarcity” mentality, that is pretty much going to dictate your life with money, and likewise, if you have learned how to support wealth in your life, you are much more likely to be wealthy, according to Leisa Peterson, a certified financial planner, who recently started her own business to teach people how to become wealthy.

She suggests starting with uncovering the fear that is holding you back from wealth. Explore those fears, get a hold of them, and then you can set up your own standard for wealth, rather than living by other people’s standards.

After all, the point of this entire exercise is to get a realistic view of what wealth means for you - one that is achievable under your current circumstances and the plans you will put in place. With some patience, you will get there.

Tip: Financial Pitfalls to Avoid

More from CreditDonkey:

How to Build Wealth in Your 20s

10 Smart Ways to Save $1,000 a Month

10 Smart Ways to Invest $1,000

More Articles in Money Tips

    23 Ways to Build Wealth in Your 20s

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    Get in the habit of spending and saving wisely in your 20s and you'll be on solid footing when you're older. Use our tips for how you can build wealth, starting now. You can thank us later.

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