With the new year fast approaching, many of us are likely starting to think about our finances. In particular, you may want to increase your net worth or even get rich.
After all, getting rich will allow you to have not only more financial security but also more options. And, of course, you would be able to spend more on the things you want. The problem with getting “rich,” though, is that it takes time and effort.
Get-rich-quick schemes are almost always nothing but a way to prey on those who are struggling financially. Unless you are born into a wealthy family and a large inheritance is passed, you will likely have to become rich through hard work and financial diligence.
In reality, there are arguably no secrets to becoming wealthy. Time-tested approaches are generally your best bet, and our experts confirmed that. They outlined some of the best ways to become relatively rich quickly.
1. Avoid (and pay down) debt
Debt is not necessarily bad in all instances, but it is something to be avoided most of the time. For example, student loans can be helpful if the amount you owe and the interest rate aren’t too high and they help you get a good job. “Some experts would say that student loans are bad debt, but I disagree,” said Robert Johnson, chairman and CEO of Economic Index Associates.
“I would categorize modest student loan debt as ‘good debt.’ In my opinion, student loans get a bad rap.” Again, the emphasis is on how you use them. Student loans can certainly be wrong if the numbers don’t work in your favor.
“There is no doubt that the system has been abused and that some students have accumulated a mountain of debt and earned degrees that simply won’t provide the earning power to pay that debt back,” Johnson said.
Johnson also emphasized that credit card debt is always wrong and should be prioritized over student loans. Ariel Acua, the founder of independent wealth management firm LTG Capital LLC, recommended putting at least 20% of your paycheck toward debt if you have it.
2. Spend intentionally to minimize your costs.
To get rich, you need to spend your money more wisely and spend as little as possible. This is the second step, because it should be one of the first things you do. Spending intentionally and minimizing your costs will require you to keep a budget. In doing so, you can track precisely how much you spend and where.
Acua recommends a checklist of how you will spend. “Develop a prioritized checklist for how you will spend your paychecks when you receive them. This includes allocating money to debt reduction, savings, fun, emergencies, etc.”
Your goal should be to minimize costs as much as possible so you can put that money toward building wealth. Jeff Burrow, president and lead advisor at Sierra Ocean, said you should “ravenously find ways to limit your lifestyle costs and save 25% of your income.”
3. Invest as much as possible in a diversified portfolio.
While there are limits to how much you can put into a 401(k) or IRA, those limits are high enough that many people cannot reach them. And if you do, you can always invest more in a taxable brokerage account.
Thus, if you want to become rich, you should invest as much as possible; there is no upper limit to that amount. There are many different investment strategies, but most experts recommend putting most of your money in the stock market.
Some recommend a smaller portion of real estate or even speculative investments. Burrow recommends a portfolio of 65% stocks and bonds, 25% real estate, and 10% speculative assets of choice.
You will first want to invest that money in a tax-advantaged account such as a 401(k) or IRA. That will help you minimize your tax bill and thus increase your returns over time. If you manage to max out all tax-advantaged accounts, you can move to a brokerage account.
4. Work on Your Career
There is no substitute for higher income. As they say, there is only so much you can cut in terms of expenses, but there is no limit to how much your income can increase, at least in theory.
“Ensure that as you advance in your career, business, or main occupation, you always save more than you spend as you earn raises and increase your gross income,” Burrow said. “Lifestyle cost creep will wreck a plan to get rich as quickly as possible.”
Of course, increasing your income will depend on your job. Those working hourly jobs, for example, may have minimal leverage to increase their income. But if you can move up the corporate ladder, that can be a powerful way to become rich, as you will be able to save and invest more.
5. Find extra work.
The idea of a side hustle is nothing new, but if you have some extra time and can pick up some extra work for a few hours a week, that can be a powerful way to increase your income.
Gig economy workers such as Uber and TaskRabbit make it easy to find flexible work. And there is no shortage of lists of different types of side hustles to be found online. Finding a side hustle is sometimes easier said than done, but this can be extra money in which you can continue to invest. “Immediately try and find 2-3 side hustles that can boost your take-home income. Save as much of that as you can,” Burrow said.