Unfortunately, way too many people aren’t able to build wealth because they fail at the three simple steps you need to follow to build wealth.
The steps are easy to both understand and enact. The one thing most people lack when it comes to following these steps is discipline.
If you can follow these steps, you will grow your wealth over time.
Step 1 – Earn Money – The More The Better
The first step to building wealth is earning money. The best part about the first step of building wealth is the fact that it has unlimited potential.
You can earn as much money as you put your mind to earning which is pretty awesome. Why?
The amount of money you earn directly relates to how much wealth you can build and how quickly you can build it, especially in the beginning of your wealth building journey.
While your wealth will help itself grow toward the end of your wealth building journey, the beginning can be the most important due to the amount of time you have available to you to build wealth as you will see in step 3.
Step 2 – Don’t Spend All Of Your Money
Step 2 is super important, because if you spend all of the money you earn, you can’t grow your wealth unless you’re already wealthy. No matter how much money you end up earning, even if you earn $1,000,000 a year, if you spend every penny of it, you’ll never have any money available to grow your wealth.
The best part about this step is if you spend less money you will have more money available to grow your wealth through implementing step 3.
Related: 123 Money Saving Tips
Step 3 – Invest The Money You Didn’t Spend
Even if you follow steps 1 and 2, you won’t get wealthy without following the third step to growing wealth. In order for your wealth to truly grow, you must invest the money you didn’t spend. Luckily, there are many different ways you can invest your money!
Investing is key to growing wealth due to the effect of compounding. Essentially, compounding is the effect of the earnings on your investments generating even more earnings. Over time, compounding will allow you to grow your wealth enormously. Here’s a quick example.
Let’s pretend you make a one time investment of $10,000 at a 5% interest rate. How much money do you think you would have after 5, 10, 20, and 40 years? Here’s the results:
- After 5 years you would have $12,763. (Earnings of $2,763)
- After 10 years you would have $16,289. (Earnings of $6,289)
- After 20 years you would have $26,532. (Earnings of $16,532)
- After 40 years you would have $70,400. (Earnings of $60,400)
As you can see, compounding is pretty powerful. The longer you invest your money, the more your money grows due to compounding. Add the fact that you’ll likely continuing investing as you have more money available each year and you’ll end up growing your wealth in no time flat.
If you are able to earn better investment returns, your wealth will grow even faster. Just make sure that your investments are in line with your risk tolerance and the timelines you have for your goals.
Growing wealth is simple. All you have to do is follow the three steps above. The real trick is finding the discipline to enact these three steps consistently throughout your life. If you can do that, you’ll be able to allow time and hard work to grow your wealth through investing.
What do you think about the three steps to building wealth? Is there one step that you find is more important than another? Or another step that I didn’t list here? Let me know your thoughts in the comments!
Photo by: Ervins Strauhmanis Text added by: Lance Cothern