How to get rich: 7 steps you can take to become wealthy

Many Americans are looking to become wealthy, and it’s a real possibility if they focus their efforts on doing the things that lead to success. By breaking down wealth building into a few key practices, you can turn even an average income into a significant bankroll that sustains itself.

Here are seven things you can do to get rich and what to watch out for along the way.

7 things you can do to become wealthy

1. Adopt the mentality of a wealthy person

As you’re looking to build wealth, It’s important to think like a wealthy person and to understand what that means. While Hollywood would like you to think that the wealthy go around throwing money at everything, the truth is that the everyday wealthy are reasonably frugal. They know the way to get wealth is not to spend it. It’s simple: You can’t have your cake and eat it, too.

As part of their frugality, these everyday millionaires focus on getting good value for their money, and they don’t spend money as a way to validate their own egos. They don’t need a flashy new car to feel good about themselves nor do they need the biggest house on the block. By removing some of these psychological motivations for spending, it’s easier for them to grow their wealth.

2. Eliminate all “bad” debt

Many individuals get themselves into trouble by using “bad” debt. That is, they use high-cost debt such as credit cards – many of which can charge interest of more than 20 percent annually – to make purchases and then run a balance on those cards. With that level of interest, the balance grows quickly and it can be easy to amass a huge pile of high-cost debt with few assets to show for it. So getting rid of the drag of that bad debt can help you on your way to grow your wealth.

Of course, many of the wealthy do use credit cards – but they do so responsibly. They’ll find the best rewards credit cards, spend responsibly, pay off the bill every month and bank the rewards points. In many cases, they’ll be able to get 2 or 3 percent back on their spending each month and they’ll do so on spending that they would have made anyway, so it really is a bonus.

3. Use “good” debt

It can be really valuable to take on “good” debt, however. Good debt is low-cost financing for a productive, long-lived asset such as a house. A house tends to appreciate over time, and long-term financing allows the purchaser to lock in payments for as much as 30 years. This good debt keeps your house payments fixed for decades even while the price of housing rises. At the end of the mortgage, you’ll end up with a valuable asset even while living in it for decades.

Good debt should be affordable and help you invest in an asset that can grow your wealth over time. It’s not debt – even low-cost debt – that is used for frivolous everyday spending.

4. Save, save, save

There’s just no way around it, if you want to get wealthy from the sweat of your brow – you have to spend less than you earn in order to save money. Those who have worked their way to wealth have done just that, even those with average salaries. While having a larger salary is helpful to building wealth, there is no salary that’s large enough that it cannot be spent. So it’s absolutely vital that you have a saving discipline if you want to grow your wealth or you’ll go nowhere.

Your savings forms the core of your wealth. Especially in the early days of building wealth, the biggest way to grow your nest egg is from your savings. Later on when you’ve built up enough wealth, your money will be able to compound much faster than you can save from your income. 

5. Invest in high-return assets

Those who are looking to amass wealth turn to proven high-return assets such as stock and stock funds. While they may keep an emergency fund in a high-yield savings account, they’re investing for the long term in investments, such as stock funds based on the S&P 500 index, that have returned 10 percent on average per year over long periods of time. 

While stocks can be notoriously volatile in the short term, they have a good long-term track record. So it’s important to take a long-term mentality with these investments. That’s why a safe emergency fund is vital, giving you and your family safety in case of unfortunate circumstances and allowing you to keep your long-term investments untouched and growing over time.

A good financial advisor can help you find high-return assets that meet your needs.

6. Invest regularly

Investing is also more than just dumping your money in the market at one point. Using your savings discipline, you need to add money to your investments regularly to keep your nest egg growing. This approach – called dollar-cost averaging – helps reduce your risk of investing all your money at the wrong time in the market. You’ll spread out your buy points and lower your risk of buying in at the top of the market, and over time your wealth continues to grow.

7. Work with a financial advisor to keep you on track

A financial advisor can be a valuable asset in growing your wealth. A good advisor can help you find the right investments and help you uncover strategies that meet your financial needs. One of the biggest advantages of a good advisor is helping you stick to your long-term investing plan when the market gets rough, as it inevitably does from time to time. By staying the course – for example, by continuing to invest when the market is down – you can avoid the mistakes that hit so many investors who bailed out when times were tough and derailed their wealth-building.

A financial advisor can also help you make smart planning moves and safeguard your hard-earned assets for your heirs.

Bottom line

One of the biggest steps to become rich is to start today, even if it’s only learning how to build wealth. Because of the power of compounding, time is your biggest ally in building wealth, so it’s important to get started as soon as possible and get your money working for you.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.