Everyone wants to know how to become rich.
Well…wealth building seems like such an easy concept. Conventional wisdom told us "Get a good education, then get a good paying job and keep working hard, and earn more."
Many of us are doing that, but have hardly any wealth to show for our effort.
Why?! We’re not only good at making money, we’re also very good at spending money.
In order to build wealth and become rich, you got to have the foundation to start with. Here…we’ll start with some fundamental wealth building strategies from many, many years ago advice from The Richest Man in Babylon and to more recently The Millionaire Next Door and The Rich Dad Poor Dad.
I'll also suggest a lot of reading...you need to have good education on money and finance to have your money works hard for you.
You’ll be surprise, many people who dress and spend like a millionaire is not anywhere close to a millionaire at all. Millionaires are such plain, down-to-earth people.
Wealth is not defined by how much money a person makes, but how much money a person accumulates. You can have people making over half a million dollars a year, but have nothing accumulated. On the other hand, you have someone making $80,000 a year, and have a million dollar asset and still able to pay for their children’s college.
Let’s explore some tried and true wealth building strategies or behaviors that helped many become the richest men and women all throughout history. I hope we’re smart enough to adapt these changes in our lives and our families’ lives.
Wealth Building Strategies on How To Become Rich:
1. Pay Yourself First. This is simple. No matter what, you need to pay yourself first, at least 10-15% of your pretax earnings.
I automatically put aside 15% of my pay to my TSP, which my employer matches 5% of my contribution, which is free money for me tax-free, not to mention the appreciation over time tax-free.
I also set up automatic transfer of savings from my checking account to my investment account that I have no debit card access to. The only way to access money from my investment account is through bank transfer to my checking, which takes at least 2-3 business days.
In order to build up cash, you have to make the process automatic and easy.
Related articles: How to Make Money Work for You
Suggested reading: The Automatic Millionaire and The Automatic Millionaire Homeowner
2. Live Within Your Means. This is a no brainer. If you spend everything you earn at the end of each month, you'll have nothing left to invest.
Keep a budget and plan for your finance. Be frugal. Buy only what you can afford and need. Don’t dress to impress your enemies. Buy used cars and shop for clothing on sale.
I don’t buy expensive clothes, but I dress nice every day. Ask anyone who knows me.
I buy all my clothes and shoes on sale at Banana Republic, Victoria's Secret, Nordstrom Rack and TJ Max. I stopped shopping at the regular Nordstrom and buying clothes at regular undiscounted prices.
I drive a regular Toyota Prius and I love it.
You don’t need to wear expensive clothes or drive a Mercedes Benz to impress. You should impress others with who you are and your personality.
Remember, wealth is how much you accumulate in asset, not the doodads you accumulate.
It takes great discipline to be wealthy.
Related articles: Pay off Loans Quickly
3. Invest in profitable business and real estate opportunities. Pay attention to financial details and look for profitable financial investment opportunity.
I’m always on the internet looking for real estate deals.
I always laugh every time when someone tells me there are no good real estate deals in Hawaii to invest in. I find them all the time.
4. Own Your Residence. Everyone has to have a place to live in. Instead of paying rent to someone else to pay their mortgage, why not pay your own mortgage.
If you don't have the money yet to put down for down payment, start studying the strategies on this page and practice them every day.
Contact me to discuss your plan to becoming a homeowner.
5. Own a business. Many self-made millionaires are business owners or self-employed professionals. In fact, 75% of them.
Most people think owning a business is risky. But most wealthy business owners would tell you “Having only one income is risky”. Not having control of your own income is risky. Not knowing whether you'll have a job tomorrow is risky.
Business owners are in control of their earnings, they have multiple sources of income from many clients.
Think of what you enjoy doing the most, and make that your business. I love real estate and personal finance, so I make real estate investing and personal finance my business. You gotta have money to buy real estate, which in return generates more money for you.
The other big perk of having a business is tax benefit. The US tax laws are written to protect business owners and married couples. The biggest tax beneficiaries are married business owners.
I highly recommend going to one of Mark Kohler’s workshop if you have the chance. He’s hilarious and makes the boring tax topics so much more entertaining. And, of course, you'll learn a lot about business tax laws, business entities, asset protection, etc. In his workshops, which he hosts throughout the country several times a year, Mark explains why everyone should have a business, and that married couple - one employed professional and a self-employed real estate professional, makes the best match for maximum tax benefit.
Related article: Why Starting a Small Business is the First Step in Building Wealth
6. Be goal-oriented. You need to have clear goals to direct your action and search for wealth building opportunities. Once I set my mind to become a real estate investor, all the resources and people just start coming into my life toward my goal of becoming a real estate investor. Set daily, weekly, monthly, yearly, and lifetime goals to help you stay on track.
7. Increase your ability to make more money. Try to be a better you each day and look for opportunities to make more money. My focus is always cash flow.
Again, set goals to keep you on track and know what you’re looking for.
Need quick money? Become a Uber Driver and start making money right away.
8. Protect your income with life insurance. Everyone dies eventually, make a fortune out of it and leave a handsome legacy for your family.
Today, life insurance not only benefit your family when you die, many now offer “living benefit” that you can use when you’re alive, such as terminal illness provision, loan borrowing, and long term care benefits built into the life insurance policy.
Have you heard of the "Be Your Own Bank" concept?
Related article: Protect Your Family
9. Minimize income tax. Income tax is the single largest expenses for most US households. It is taxed on income, not wealth and not on unrealized appreciation of wealth, such as home value appreciation.
Most US household pays more than 10% of their wealth in income tax each year, while wealthy household pays just about 2% of their wealth in income tax.
You can minimize your income tax by starting a business and start writing off your business expenses, such as phone bills, home office, internet services, car expenses, tee-time, etc. Did I say tee-time?
Earned income are taxed more than corporate income tax because of social security and medicare tax for the “employed” or "W2 earners".
“Employees” cannot write off car expenses commuting to work, meals eaten at work, clothes you wear to work. But business owners can deduct all of the above including trips to visit their business locations, potential clients, etc.
There are so many ways to minimize income tax, not avoid.
Suggested reading: What Your CPA Isn't Telling You: Life-Changing Tax Strategies
I have an active life and health insurance license and can provide a complimentary financial needs analysis as part of the standard consultation.
Therefore, you pay no commission or service fees to me at all.
So contact us today for a FREE no-obligation consultation.