Building wealth from scratch can sound like a far-fetched idea. Most people have the notion that wealthy people are beneficiaries of generational wealth or good business connections.
However, a 2019 report surprisingly showed that almost 70% of ultra-high net worth individuals are self-made. These are people defined as those who own assets that are worth USD 30 million and above. What this report implies is that a ‘normal’ individual can build wealth and, if they can do it, you can too!
But, the key to building wealth doesn’t lie in simply making more money. It also involves being strategic in your financial planning and using what’s at your disposal to your advantage. It includes things like moving your savings account to one with better interest rates and such. But one of the fundamental truths about building wealth is that it takes time.
Here are six proven tips to help you start building wealth from virtually nothing:
Educate Yourself About Money
Mindset is everything as it influences your ideas and your attitude towards money. It’s the first thing you need to change if you’re to make any progress in wealth creation. While everyone is capable of building wealth, it’s important to invest enough time in financial education. This helps you build a solid foundation. This is the first and important step where you familiarize yourself with terms and financial concepts.
You can attend seminars, read books and magazines, or listen to podcasts from reputable financial experts. Be cautious as there’s also a lot of financial information out there that’s inaccurate.
Create A Regular Source of Income
Building wealth can be challenging when you don’t have a regular income source because you can’t save or invest without money. Without creating inherent value and earning an income, building sustainable wealth is impossible. So, you need to get a source of income through work or by enhancing the long-term value of your business.
Besides your job or business, another way of earning regular income is by exploring passive income ideas. This is the type of income you generate without your continuous or active presence, unlike your business or job.
It can be through investment or non-investment means. Today’s digital economy provides numerous opportunities for earning money on the side. However, you should remain cautious of Ponzi schemes disguised as legitimate ways to make money.
These are some of the proven methods of earning a passive income:
- Affiliate marketing
- Selling digital products
In building wealth, you’ll need to first save money then invest. Passive income can significantly enhance your income and, therefore, your ability to save more.
Create A Budget
Another important thing in building wealth from scratch is to take control of your spending. If you earn and can’t account for your money, you need to draw a budget and stick to it. To understand your spending, start by calculating what you earn versus what you spend every month.
Spending money without a budget is like walking with a blindfold. It’s a guarantee that you’ll lose your financial footing and fall. You have a high chance of accumulating debt and remain unable to save and invest. Having a budget helps you identify expenses you can do away with and increase the amount you put into your savings. Savings are vital in building wealth, and cutting unnecessary spending can set you up to start building your wealth.
Start Saving Automatically
If you want to build sustainable wealth, start saving without thinking about it. You can automate savings such that you eliminate putting the decision on yourself or whether to put money away as savings or not. Having your money automatically deducted from your pay stub or drawn from your checking account into a savings account helps you save without effort.
When you’re not thinking about it, it starts to accumulate, making it an excellent way to start building wealth with no effort.
Build An Emergency Fund
It’s essential to set up an emergency fund. This is the money you put aside to cater to emergency expenses or unforeseen circumstances that hinder your ability to create an income. In 2020, the biggest lesson people learned was perhaps the importance of having an emergency fund. When situations that you hadn’t anticipated arise, they can dent your financial health extensively. You may end up in debt or be forced to sell your investments.
Selling an investment means that you lose both the investment and the interest it would’ve earned you if you kept it. This crashes the wealth you had started building. To be safe and to avoid such scenarios, an emergency fund becomes vital to wealth building. In addition, ensure that the emergency funds are in a liquid savings account that you can have access to anytime the need arises. An emergency fund won’t build your wealth, but it’ll ensure that whatever other investments you’re making for that purpose remain intact.
Start Owning and Stop Owing
Another proven tip for building wealth is by owning things that go up in value with time. These include real estate, mutual funds, Exchange-Traded Funds (EFTs), and traditional and growth stocks. The biggest hindrance in building wealth is debt. Avoid credit card debts and other debts that take a significant part of your income, inhibiting your ability to save and invest.
To know how much your debt affects your ability to build wealth, you need to calculate your net worth. Add the value of all your investments, bank balances, and assets you own, and subtract all the debt you have. The debt includes a credit card, mortgage, car loan, and any other amount you owe.
If your net worth is in the negative, it means your journey to building wealth will start a little far behind. That’s why getting out of debt is a crucial accelerator when looking to build wealth from scratch.
The easiest way to start building wealth from nothing is by reducing your spending. The money you have after spending is the accurate predictor of wealth, not what you make. You can make a lot of money from your business, job, or through passive income, but if you spend it all, there’ll be nothing left to start building wealth.
So, if you’re to take one thing out of this article, let it be controlling your spending and using the leftover amount for savings. Drawing a budget and sticking to it ensures that you have some leftover money to put into savings for investment purposes. Also, it leaves you with money you can put into an emergency fund.
Remember, be patient. Building wealth takes time.