Among the most damaging and misguided beliefs about money is that only those born into it are capable of becoming wealthy. In reality, more wealthy people are self-made than you might realize. Keep reading for proven tips regarding how to get rich from nothing and rewrite your financial story starting today!
How to get rich from nothing
Disclaimer: Nothing in this article should be taken as financial advice. The right financial plan for you will always vary depending on your specific circumstances. I’m simply sharing general tips research has proven to be effective for building wealth from scratch.
1. Choose a path proven to generate wealth
Thomas C. Corley, the author of Rich Habits, spent five years analyzing millionaires to figure out how they did it. He found they generally fall into one of four buckets (as described in this Business Insider article):
- Saver-investor: Millionaires on this path saved and invested at least 20% of their income.
- Senior corporate executive: These millionaires got wealthy by climbing the ranks at large corporations. Most of them received significant stock compensation and/or a share of profits.
- Virtuoso: Millionaires in this category built their wealth as a result of possessing world-class knowledge and skill in a particular area.
- Dreamer-entrepreneur: Lastly, millionaires in this bucket built wealth by pursuing their dreams. This includes entrepreneurs, authors, musicians, and the like.
This isn’t to say you can’t become rich by taking a path that isn’t on this list. If you have no idea where to start, though, consider which of these four paths aligns with your strengths and make a plan to get on it.
2. Invest your money
You can only work so many hours in one day. Consequently, the amount of money you can earn actively (by trading your time for pay) is finite. No such limit exists on the amount of money you can earn passively by owning valuable assets that appreciate over time.
It should come as no surprise, then, that Internal Revenue Service (IRS) data shows most millionaires earn money through investment growth.
In addition to simply scaling more efficiently, investment income is taxed more favorably than employment income in North America. In Ontario, for example, $100,000 in employment income would result in a tax burden of $23,028, according to a TurboTax calculator. That same $100,000 earned through capital gains, meanwhile, would only result in a tax burden of $8,257.
So not only is investing a valuable strategy for earning more money – it’s also a valuable strategy for keeping more of the money you earn. Those perks mean investing dramatically reduces the amount of time you need to get rich.
Check out my article about investing to learn the different investment strategies (including asset classes) out there.
3. Play the long game
I’ll let you in on a secret. Becoming a millionaire is the easiest thing in the world if you’re patient and have time. Investing $500 monthly in an index fund that returns 8% annually (i.e. an S&P 500 ETF) will get you there in roughly 34 years.
The mistake many people make is focusing too much on time while paying little attention to the likelihood of becoming wealthy with a particular strategy. They’d rather use a strategy that has a 0.01% chance of working within five years (*cough* crypto trading *cough*) than something that has a 99% chance of working within 30 years.
If you’re serious about getting rich from nothing, you need to be smarter than that. Keep in mind, according to research by Rutgers, the average millionaire is 57 years old. Getting rich usually takes a few decades, so buckle up.
4. Increase your income (and the amount you invest)
While it’s true many people become millionaires without ever earning more than $100,000 annually, there’s no denying getting rich is much easier on a high income.
Think back to my previous example of becoming a millionaire in roughly 34 years by investing $500 monthly in an S&P 500 index fund. A higher earner could cut that timeline down to roughly 19 years by investing $2,000 monthly. Increase your income to the point where you can invest $10,000 monthly and suddenly you’re looking at achieving millionaire status in just six years (assuming you start from nothing).
There are many ways to increase your income substantially (some don’t even require a degree – see my article about the surprising truth behind earning a six-figure salary). Check out this article I wrote containing a list of 20 strategies for earning more money without taking on a second job.
5. Don’t overspend on transportation or housing
Overspending on your vehicle and/or house is an incredibly easy way to shoot yourself in the foot financially.
Most people instinctively know this is the case with vehicles. Almost every car depreciates until it’s virtually worthless. Consequently, buying a vehicle is like lighting your money on fire. This isn’t the end of the world if you buy a vehicle you can comfortably afford and drive it into the ground. If you buy a new luxury vehicle every five years, though, you’ll suffer in two ways:
- having less money to invest
- having more money tied up in a depreciating asset
Similar logic applies to homeownership (although many people don’t realize it since primary residences are generally thought of as being great investments). If you spend too much money on a house, you’ll end up house poor, which can jeopardize your chances of becoming rich.
A general rule of thumb is to spend 50% of your income on needs, which includes transportation and shelter. That should leave plenty of money for wants and building wealth.
6. Set clear, achievable goals
What does “getting rich” actually mean to you? Is it obtaining a particular amount of money? Raking in enough passive income that you never have to work again?
Whatever the case may be, set clear goals. This will give you something to work towards and reduce the likelihood of you wasting time on strategies that won’t deliver the intended results.
My article titled How much money is enough? should help you figure out what goals to set.
7. Set a budget
Budgeting is all about being intentional with how you spend money. This is essential for getting rich; people who don’t budget tend to see their money develop a mind of its own and do just about everything but build them wealth.
Budgeting doesn’t have to be complex or require lots of manual work. Check out this article I wrote about organizing your finances for some tips.
8. Associate with wealthy and successful people
There’s truth behind the saying, “your network is your net worth.” Wealthy people tend to associate with one another, sharing opportunities, ideas, connections, and optimism.
This isn’t to say you should kick your less well-off loved ones to the curb. There’s more to life and relationships than becoming rich, after all. However, you’ll certainly benefit from spending at least some of your time learning from wealthy people.
There are some people you should kick to the curb if you want to become wealthy. Those are toxic people – particularly coworkers. Some people want nothing more than to drag others down with them. These people will dramatically reduce your chances of becoming successful and wealthy. Chances are, they have little to offer by way of opportunities or connections, either. Avoid them at all costs.
9. Take a few bold (but calculated) risks
My tips so far have been all about laying a solid foundation. Once you’ve nailed that part down, though, you might want to consider taking a few bold, calculated risks.
Approaches I’ve seen people take include:
- starting a business
- researching and investing in individual stocks or cryptocurrencies
- purchasing and reselling collectibles (i.e. luxury watches)
- purchasing investment real estate
The key (in my opinion) is to approach these risks in an asymmetric way. If they pay off, you should walk away with significant gains. If they fail, the impact on your bottom line should be minimal thanks to the fact you established a solid foundation.
I approach this by only taking calculated risks with money that was already allocated to fun activities anyway. My financial return on something like dining out would’ve been $0 anyway so if I use that money to buy a stock that loses 50% of its value and never recovers, it’s not the end of the world.
How to get rich from nothing: Conclusion
I hope this article has helped you understand what it takes to become rich even if you’re starting with nothing. For more of my articles on the topic of financial planning, click here.
