Learn Money Girl's 4 ways to build your wealth and grow rich—even on a budget.
When you think about people who are rich, Bill Gates or Donald Trump may come to mind. Though you might not be able to become as wealthy as them, you can accumulate a small fortune of your own over time. Just realize that having a personal fortune isn’t about driving a Lamborghini or hanging out on a yacht all day (although that would be nice). It’s about having a secure financial future that can provide for you when you stop working. In this article I’ll lay out four top strategies to help you build your wealth and grow rich.
How to Grow Rich on a Budget
To start building your fortune you don’t have to work three jobs or create a huge company with thousands of employees—though that works for some people! The key to building wealth is to focus on slowly increasing your net worth. Net worth is the value of everything you own minus the value of everything you owe.
Here’s an example: Let’s say you have a car worth $25,000, a bank account with $10,000, and a few household possessions that really aren’t worth much. That means your total assets are worth approximately $35,000. But that’s not your net worth because you also have to subtract out your debts. If your only liability is a car note with a $20,000 balance, then your net worth is $35,000 (your assets) minus $20,000 (your debt), or $15,000.
The best way to keep track of your wealth is to monitor your net worth on a regular basis. The idea is to increase your assets—like bank accounts, retirement accounts, real estate, precious metals, businesses, and intellectual property—and to reduce your debts.
In my book that’s coming out on December 21st, Money Girl’s Smart Moves to Grow Rich, I take you step-by-step through the process of creating a Personal Financial Statement so you can easily stay on top of your net worth. The book is packed with quick tips and one of them is a formula to determine your target net worth for your age.
Grow Rich Strategy #1: Spend Discretionary Income Wisely
The first strategy to grow rich is to spend your discretionary income wisely. Many people have great jobs and plenty of income but have zero net worth. Having good cash flow is fantastic! But guess what? It doesn’t increase your wealth if you spend it carelessly on things that don’t appreciate in value like clothes, vacations, and nights out on the town. Stars like MC Hammer and Toni Braxton come to mind as extreme examples of people who earned tons of money but didn’t end up with anything to show for it and went bankrupt. Hammer burned through something like twenty million dollars and Toni just couldn’t make ends meet on $47,000 a month!
In order to turn your income into a fortune you have to use some of it to increase your net worth by doing what I previously mentioned—increasing your assets, reducing your liabilities, or by doing both. If you’re not sure whether it’s better to use your discretionary money to make investments or to pay down your debt, be sure to read what I wrote in a previous Money Girl article.