Becoming rich requires knowledge, hard work, and most importantly, planning. None of this will be easy, of course, but there are some proven steps that can make you rich, assuming you invest time, effort, and dedication. By investing in yourself and in the stock market, you are likely to become rich one day.
Step
Method 1 of 1: Saving
Step 1. Save
Saving is one of the important skills to get rich. The saying “saving ten thousand will make ten thousand” is true on one hand, but on the other hand saving “ten thousand” will even yield “one hundred thousand” after a while if you invest your savings properly.
- Saving requires one main condition: spend less money than you earn. This is easy to do if you have a steady income (then investing in education is very important), but it's important to remember that saving is an absolute must regardless of your income figure, regardless of the amount.
- Try to start saving 10% of your income every month. This is a recommended target, but if this is not possible, just save as much as you can, while still aiming to increase the amount of savings in your account each month.
Step 2. Create a budget
A good budget is the first step to getting rich. This helps you identify all expenses, and thus you are able to control and minimize those expenses. This method will allow you to save so that you can have capital to invest.
- Take a piece of paper or use a word processing program on your computer and list all your income for a month in one column. At the bottom, add up the totals.
- In the other column, do the same for expenses. Make sure to include everything. A helpful way to do this is to check your savings and credit card statements. Add up all the expenses in that column to determine the total number of expenses.
Step 3.
Identify spending areas that you can reduce.
Look again at the expense column to find areas that can be reduced. Your goal should be to create a larger difference between the total number in the income column and the total number in the expense column.
- One way to do this is to distinguish between “wants” and “needs.” Wants are important, needs are choices. Look in the “wants” section of each month and find out which ones can be reduced. For example, you might want a new mobile phone with a 3GB data plan, but you only need a regular mobile phone with a 1GB data plan.
- Consider taking a look at the needs section as well and checking to see if it can be reduced. For example, renting a house is important, but you may be able to rent a house at a lower price in a less expensive area, or downgrade from a two-bedroom to a one-bedroom house.
Create an emergency fund. Before you make any investment, always have an emergency fund ready. Experts recommend that everyone has at least three months of living expenses in an emergency fund in case you lose your job, have a sudden medical need, or an unexpected expense.
After setting up an emergency savings fund, you can focus on using your savings to build your investment portfolio
If you live and work in the US, take advantage of a “401(k) workplace” if you have one. About half of American workplaces have access to a 401(k), a specialized financial planning system that deducts a small amount each month from your paycheck to invest. Often, your employer will set aside the same amount or part of the amount of your contribution.
- The advantage of the 401(k) system is that your money increases without being taxed (as opposed to the usual mechanism, where taxes are levied and collected over a year on the money invested so the amount is difficult to add up). In addition, the money you contribute can also reduce the amount of your tax. This means that if you contribute USD 5,000, that amount is not subject to income tax.
- Check with your US workplace if a 401(k) system is available. If so, make sure that you take advantage of them, especially if your employer offers a contribution that is equal to yours. This is a wonderful way to generate wealth.
Invest
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Understand the basics of investing science. Investing is very complicated, but fortunately, you don't need to master overly complex techniques. In fact, just by following the basic principles, you can invest your savings and see the amount grow over time.
Become Rich Someday Step 6 - In general, there are several types of investments. The most common are stock and bond investments. Stocks indicate ownership in the business, and bonds represent money that you lend to the business or government and you will earn interest on it.
- Most investors have a combination of debt and equity in their portfolios.
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Learn about mutual funds and exchange traded funds (ETFs). Mutual funds and ETFs are similar in that they are a collection of many stocks or bonds. Both are variations on how to invest, because you can't just invest in stocks by buying/selling one stock at a time. However, there is a big difference between mutual funds and ETFs, so do some research on both before deciding where to invest your money.
Become Rich Someday Step 7 - ETFs offer greater flexibility and have lower expense ratios than mutual funds. ETFs are more tax efficient, but have a smaller potential return than mutual funds.
- ETFs trade just like regular stock exchanges and their value fluctuates throughout the day. Meanwhile, the value of a mutual fund is calculated only once a day, using the closed market price of the securities in the fund's portfolio.
- Mutual funds are managed while most ETFs are not. Mutual fund holdings are selected by investment managers who seek to make the fund generate the greatest possible profit. The manager actively monitors market conditions and revises the fund's assets as necessary.
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Choose a broker. Decide whether you want to use an online broker or a full-time broker. Full-time brokers have the time and knowledge to make your investments successful; however, they also charge high fees. If you feel sufficiently market savvy and want to manage your own portfolio, you can register with online brokers, such as “TD Ameritrade”, “Capital One”, “Scottrade”, “E*Trade” and “Charles Schwab”.
Become Rich Someday Step 8 - Always keep in mind the fees charged before opening an account as well as the minimum account amount. All brokers charge a fee per trade (with a range of USD 4.95-10 in general), and many also require a certain minimum initial investment value (around USD 500 or more).
- Currently, online brokers that do not require a minimum investment value limit are, for example, “Capital One Investing”, “TD Ameritrade”, “First Trade”, “TradeKing”, and “OptionsHouse”.
- If you want more help with your investments, there are a variety of ways to get financial advice. In the US, in non-selling matters, you can find an advisor in your area by visiting one of these websites: www.fpa.net, letsmakeaplan.org, www.napfa.org, or garrettplanningnetwork.com. You can also go to your local bank or financial institution, but many of these institutions charge higher fees and have high minimum investment requirements (for example, USD 500,000-1,000,000 as a common US figure).
- Some financial advisors (such as CERTIFIED FINANCIAL PLANNER™) have the ability to provide recommendations in several areas, such as investments, taxes, and retirement plans, while others can only provide general guidance, not recommendations. It is also important to recognize that not everyone who works in a financial institution is bound by the professional responsibility of putting the interests of their clients first. Before starting to work with someone in this process, ask them about their qualifications and training background, to make sure they are the right person for you.
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Expand your investment regularly. Instead of investing a large amount of money and hoping that over time it will pay off more, you can invest regularly, to minimize the risk. This is known as the “dollar cost averaging” (DCA) strategy. To do this, make a schedule (say once a month) to spend a fixed amount of money buying stocks. When the stock price is low, you can buy more shares; when the stock price is high, you can buy fewer shares, but always for the same amount of money each month.
Become Rich Someday Step 9 - For example, say you commit to investing $500 in company X once a month. This month, the shares are worth IDR 500,000 per unit, so you will buy 10 units of shares (with IDR 5,000,000 in cash). In the next month, if the share price increases to Rp. 100,000 per unit, you will buy only 5 units of shares (with Rp. 5,000,000 in cash), and so on.
- Always invest regardless of what is happening in the market. There have been 11 markets that have crashed since 1956, but those markets have recovered with earnings now far exceeding their losses. Keep investing every month, and be aware of the fact that your wealth will increase over time.
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Start investing right away. The real secret of wealth is to start investing as early as possible. Thus your wealth will "pile up" over time. Accumulating means that you will earn interest from the initial capital, then in the following year, the interest will be combined with the initial capital and will generate additional interest again.
Become Rich Someday Step 10 - For example, if you invest IDR 5,000,000 and make 5% of this amount in one year, you will have IDR 5,250,000 in cash. In the following year, you will earn 5% of IDR 5,250,000. This means you will have IDR 5,512,500. In the following year again, you will earn 5% of IDR 5,512,500, and so on.
- The results obtained will increase over time. If you invested $1,000 every month starting 30 years ago, you would have $1.8 million today. This is a sure way to get rich.
- Learn more about this amazing fact here.
Invest in Yourself
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Understand the value of education. Higher and postgraduate education are the surest ways to prepare to become rich. Recent research in the US found that adults with a college degree earn USD 17,500 more per year than high school graduates, and those who graduate from college earn USD 3,000 more than those with only high school graduates.
Become Rich Someday Step 11 - The study also found that the wages of high school graduates were decreasing.
- The study also showed that the unemployment rate among high school graduates was higher than among those who graduated from D3.
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Consider upgrading your education. As education increases, so do wages. Therefore, one of the best ways to increase your income is to increase your education. The journey to wealth can begin by deciding to improve your education.
Become Rich Someday Step 12 For example, the median wage in the US for a PhD graduate is USD 50,000 per year, for a bachelor's degree it is USD 64,000 per year, for a master's degree it is USD 81,000 per year, and for a doctoral graduate it is USD 115,000 per year
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Re-examine your skills, abilities, interests, and talents. Whether you have a fairly low educational background and want to improve, or already have a high educational background and want to choose a more lucrative career path, it always starts with looking back at yourself.
Become Rich Someday Step 13 - Connecting your natural abilities and interests with the required level and area of education is a surefire way to increase your income and take your step towards wealth. Ask yourself what your talents are. Consider things you can do better than other people, or things about yourself that often get compliments.
- Ask yourself what your greatest passion or interest is. For example, there may be a specific field of science that you are interested in, such as math, or a specific activity such as cooking.
- Look for areas where your talents and interests touch. For example, maybe you have an interest in the human body, and also have a talent for math or science. These fields can complement each other.
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Choose an educational path with good earning potential. For better or for worse, some fields do pay more, and are in high demand. The best situation is to have one of these higher paying fields or have a job that matches your abilities and interests. If not, consider exploring these areas to see if you can develop an interest in one of them.
Become Rich Someday Step 14 - Today some of the best earnings for a bachelor's degree are in engineering, computing, science, and business/economics fields. In many places, these fields all lead to earnings worth over USD 75,000 per year.
- If you already have a bachelor's degree and want to pursue higher education, careers such as law, pharmacy or dentistry can earn you upwards of USD 100,000 per year.
- Be sure to consider carpentry as a career option as well. If you are a person who likes to do things “with their own hands”, there is a possibility of a considerable income from this carpentry skill. Plumbers and HVAC technicians can earn as much as USD 50,000 per year, and the earning potential is endless if you have started your own business.
- Before choosing an educational path, research the current and future prospects of the job when you enter the field, and what your average income will be. Remember, a popular field will probably last only 5-10 years. This will help you determine when you will get back the value of your investment.
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Fund your education. Unfortunately, education costs money. But if you choose wisely the field, you will get this investment back with double the value.
Become Rich Someday Step 15 - Consider how much it will cost you a year or two before starting your education, so you can save. This will reduce the amount of money you need to borrow, which means you'll be repaying less when you graduate.
- Choose your study location wisely. Unless you really like living in a big city or you have family/other responsibilities, choose an inexpensive area to live in and study in. Choosing a smaller city can save you significant living costs.
- Apply for a loan from the relevant government agency to fund your education. Oftentimes, loans from such bodies charge less interest than bank interest (which is usually fixed), and you don't have to pay it back before you graduate.
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Don't stop developing yourself. Keep adding to your professional, leadership, financial, community, and life skills in general. Keeping – and keeping – yourself “highly priced” will increase your chances of whatever path you take. Continuous self-development will enable you to manage your financial assets as well.
Become Rich Someday Step 16 Continuously improving or expanding your education means increasing your earning potential. Every new thing you learn will increase your ability to generate wealth
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- https://www.businessinsider.com/the-highest-paying-college-majors-2015-5
- https://jobs.aol.com/articles/2011/10/05/best-paid-skilled-labor-jobs/
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https://studentaid.ed.gov/sa/types/loans/federal-vs-private
