How To Build Wealth From Nothing
I know, building wealth from nothing kind of sounds like a pipe dream. Honestly, if you aren’t dedicated and determined it is a pipe dream.
I don’t sugar coat thing on this site, so what I’m about to tell you takes work and dedication. However, it can be done. You really can learn how to build wealth from nothing.
Building wealth from nothing comes from consistently watching your penny’s every single day. It comes from slowly but steadily investing your money in the right ways and living within your means. I know this because I’m slowly building up my wealth from nothing.
My husband and I started with a negative net worth of $446,000 almost 9 years ago. Our net worth is now almost $550,000. Yes, we make a decent income now, but we haven’t always made money. We’ve scrimped and saved and busted our buts to get our financial life in order.
It has taken so much work, but I know it can be done. I know that you can do it too! If you follow these five steps you will begin to gradually start creating wealth from nothing.
If you want to get your finances into order and begin building wealth you have to start with the basics. Even if you are starting with absolutely nothing, you can begin creating wealth by following these 5 simple steps.
How To Begin Creating Wealth
Creating wealth from nothing isn’t a quick process. You will need to get your financial life in order. Once you get started it is surprisingly simple how quickly these five steps will help you begin to save money, reduce debt, cut your expenses and learn to invest and grow your money.
1. To Create Wealth You Have To Get In the Habit Of Paying Yourself First
In my opinion, paying yourself first should be the number one rule of finance!!! This is the one area in your life that you should be selfish and think of yourself.
The only way you will ever become wealthy is if you can make your money work for you. You can’t make your money work unless you have some money to work with.
Building wealth has to start somewhere!
Related Post: How To Start Paying Yourself First!
Starting today (not tomorrow, because it won’t happen), you need to start paying yourself 10% of your income.
If you are broke, I know that sounds like a lot of money, but I want to make you a promise. If you pay yourself 10% of your income every single paycheck you’ll never notice the difference.
It sounds crazy, but it really is true.
Think about the last time you got a raise. Were you living paycheck to paycheck before your raise? I bet you thought that your raise was going to make a difference in your finances. If you are like most of us, your raise just got absorbed into your regular life and before long it was your new norm.
Paying yourself first needs to become your new norm if you want to create wealth.
Take a look at your bank account right now and look at your most recent paystub. How much did you bring home? Do some quick math and transfer 10% of that amount to your savings account.
Personally, I recommend putting your money into a completely separate bank. I’m in love with Digit accounts right now (be aware it will do an auto transfer for you to help you increase your savings)
What if you are completely broke and can’t do 10% right now, start with 5% and gradually work up to 10%.
It can be really hard to put this money aside when you are seeing all the other bills pile up, but here is the deal. If you don’t put yourself first no one else is going to put your first.
You work really, really hard for your money and everyone wants a piece of your money. You have bills to pay, debts to get rid of, kids to feed, a home mortgage, student loans. There is always someone that is going to be trying to take a little bit of your money.
You have to decide here and now, that you are going to keep a small piece of your money for yourself.
You are going to set financial goals and start paying yourself so that you can achieve those goals.
Personally, I recommend putting your money towards a secure, risk-free investment which we’ll talk about below.
2. To Build Wealth You Have To Cut Costs:
If you are living paycheck to paycheck and ready to start building your wealth you have to cut your expenses.
If you don’t cut your expenses there will always be something that gets in the way of paying yourself first.
When trying to cut costs you need to ask yourself these three questions
• What bills can you negotiate for lower rates
• What can you do without
• What can you substitute
What Bills Can You Negotiate For Lower Rates?
The first step is to take a look at your current bills. I bet you have a lot of bills that you pay every month that haven’t been reviewed in years. Every year I call my regular providers to see if I can get a better deal.
It is amazing how quickly I can cut these costs when I threaten to leave. You can read more about how I say on regular bills in this post: 6 Ways To Save Money On Your Current Bills.
What Can You Do Without?
I bet you have some extras you can do without. You always hear the advice about not purchasing your coffee or soda each day with claims about how much money it will save you.
Honestly, these ideas will save you money, but I bet there are larger expenses you haven’t considered that will save you even more money. I’m all about bang for the buck.
For example, do you really need your fancy gym membership? I finally canceled my $35 per month gym membership that I hadn’t used in 2 months. Talk about a waste of money.
What other monthly charges do you have every month? I was a dork and accidentally renewed my Amazon membership on a monthly basis recently. At $14 a month, it adds up quickly.
Take a few minutes too look back through the last three months of expenses and see if there are costs you could cut out of your life.
What Can You Substitute?
This is a huge one for me. It is super easy to get caught up in keeping up the Joneses and suddenly find yourself spending way more money then you anticipated on stuff you may not actually need.
For example, do your kids really need all those toys? I’ve found that most of the toys collect dust anyway. As a result, I’ve started to buy most of my daughters toys at Goodwill.
What about your fancy cable package? I can guarantee that is costing you a lot of money. Both the green stuff, but also in terms of time. TV can suck up your time really, really quickly.
We’ve switched to Netflix, but there are a ton of options include Amazon’s streaming service, Hulu and Sling.
Look through your recent expenses and try to find alternative options that will save you money.
All of these ideas can help you build wealth by cutting expenses, but honestly, the best way to control your spending it to use a budget.
Budgeting when done right will completely change your life. I personally use the 50/30/20 budget which I love.
3. To Create Wealth You Have To Reduce Your Debt
I’m all about getting out of debt. My husband and I paid off 293,000 in debt in 5 years. Debt will seriously choke the life out of you if you aren’t careful.
If you are in debt, you need to begin aggressively paying down your debt. If you are working towards reducing your debt I recommend the debt snowball method.
The debt snowball method is how my husband and I were able to pay off all of our debt.
You need to write down all of your debts. Label them from smallest to largest. Begin aggressively paying off the smallest debt first. Every little extra penny you have goes towards paying off that first debt.
Once you pay off your first debt you take the payment you were making on the 1st debt and combine it with the payment of the 2nd debt. Then every spare bit of change you have goes towards paying off your second debt.
From there you go up the line. It takes a lot of work and dedication, but the debt snowball works. The number’s don’t always work for you math nerds, but the psychological wins that happen as you pay off the debts help push you towards success.
You will never be able to really build your wealth if you are drowning in debt. Make a plan to begin aggressively reducing your debt today.
Many financial writers recommend paying down your debt before investing in yourself. For years I gave the same advice, but over the years have begun to believe that paying yourself first should always be your top priority.
If the numbers just aren’t adding up then at that point you need to look at making more money.
4. Create Wealth By Building Multiple Income Streams
This is my favorite way to build wealth (well besides paying myself first)! I love the entrepreneurial side of personal finance. There is something amazing about being able to create wealth from nothing by starting a side hustle.
There are literally hundreds of ways to make money on the side. I’ve written a very detailed post that lists over 50 side hustles you can do to earn extra money. Here are a couple of simple ways to get started with a secondary income stream:
Start a Freelance Business
There are hundreds of ways to get started with a freelance business. All of which you can do from home in the evenings. If you have any type of electronic skills this is an amazing way to make money. You can become a writer, proof/edit others work, manage social media accounts, do graphic design work. Seriously, the list is literally endless.
Sell a product
If you have any type of creative skills selling items on Etsy, Shopify, Instagram or through your own blog can be very lucrative. If you don’t want to make a physical product, digital products including books and artwork can be easy to set up and begin making money.
I personally sell products via Shopify (here is my store) and love it!
Provide a personal service
If you need short-term income, you can walk dogs, provide tutoring services, babysit kids, teach music or sports skills, clean homes. I’m constantly amazed at how many amazing ways there are to make a little bit of extra money within your own neighborhood.
Start a second job
If you have a bit of flexibility then starting a second job is a great way to begin building your wealth. It is relatively easy to find jobs in the retail and food industry. Also with the wide use of Uber and other ride-sharing services doing a bit of work in your free time is surprisingly easy.
Get rid of your extra stuff
If you just need to earn a little bit of extra cash to jump-start your wealth building goal then it may be time to dejunk your house. It is amazing how much stuff we tend to accumulate. You can make a decent amount of money selling your extra stuff online or with a garage sale.
If you need help check out my new book, How To Start Your First Side Hustle. It has step by step directions on how to start making money on the side.
Making extra money is a great way to jumpstart your goals to build your wealth.
5. How Do You Actually Start To Build Your Wealth?
Now that you have begun to reduce your debt, cut costs and earn a bit of extra money it is time to start putting the money you have paid yourself to work.
This is where it gets really fun.
There are literally hundreds of ways to begin investing your money. You can invest in the stock market, real estate, your company, retirement funds.
All of the options can be completely overwhelming!
I love this stuff and I get overwhelmed thinking about all of the options.
Here is the deal, if you are a new investor, you need to start simple. Don’t go crazy trying to reinvent the wheel.
Here are my recommendations:
Open An IUL Plan To Begin Saving For Retirement
If you want a super simple way to start saving for retirement you need to open a max funded index universal life policy (IUL). I know, you are thinking how is a life insurance policy going to help me? IUL policies have a nifty little cash value feature that makes investing and saving super easy.
IUL policies have a 0% cap on losses which makes asset protection huge! They also have a cap, but I’m willing to take the cap in order to get the minimum floor to protect my assets. I personally believe they are the best retirement vehicle available. You can read more about what an IUL insurance policy is and how you can use it for retirement.
You may also want to check out why an IUL insurance policy is better than a 401K plan.
Open A Dedicated Savings Account To Create Wealth
If you want to start small and begin simple look into using Digit. You can set up a digit account in minutes on your phone. You can link it to your regular bank account and Digit will automatically begin making small transfers. You won’t even notice the money is gone.
Then every time you get paid manually transfer 10% into your account.
You will be seriously shocked by how much money you are able to save in a very short amount of time.
Begin Investing Your Money To Create Wealth
I have two recommendations in this area.
If you want to dip your feet into investing and test out how it works, open an Acorns Account. Acorns is the easiest way I’ve found to get started.
Like Digit you can download the Acorns app to your phone and get started in less than 5 minutes.
Acorns is a roboinvestment service which means that it chooses your investments based on your risk tolerance level (it walks you through this step). Acorns takes all of the work out of investing and is a great way to get started.
Here is the deal though, I don’t recommend Acorns long term. It is a great product, but as you begin to accumulate wealth you need to branch out and find a system that is more personalized to you and your financial needs.
Part of this also involves planning for retirement.
My number one reason for building wealth is to make sure I’m able to retire in style. I want to live my retirement rather than spend my retirement downsizing and wishing I could afford to do more.
Traditional retirement planning calls for investing your money into either a work 401k or an Individual Retirement Account (IRA). Both of these options are better than nothing, but in the long run, are designed to net you 4% of your account value.
This means that is you have $1,000,000 saved in a retirement account you can expect to live on $40,000 annually if you want to keep your account value intact.
That isn’t a lot of money and when you add inflation your style of living will steadily decrease. In theory, you’ll have social security income to add to your $40,000, but counting on social security isn’t the best retirement plan in our current political environment.
For this reason, I’m dumping my 401k and completely changing the way I plan for retirement.
I’m all about finding ways to create real income in retirement and the max funded IUL is perfectly designed to build wealth while eliminating risk.
Creating Wealth From Nothing Is Possible
If you follow these five steps you will begin creating wealth even if you are starting at zero (or negative like me). It isn’t going to happen overnight, but as you consistently pay yourself first, cut your costs, reduce your debt and begin investing in your future, you will be amazed at how quickly you are able to change your financial future.
Here is the deal though, you have to start today!
As soon as you are done with this article I want you to open up a separate savings account (try out Digit – You’ll get a $5 bonus and so will I – win/win) and transfer in 10% of your last paycheck. If you can’t do 10% then drop it down to 5%. Then in the future begin transferring 10% of your paycheck into your new savings account the day you get paid.
I’d love to hear how it is going for you. Comment below or if you are interested in learning more about how I manage my investments drop me an email.