Want to learn how to get rich in 2 simple steps? You’re in luck!
I have always been fascinated by rich people and wealth development strategies. There are some that are mind-blowing. For example, things like selling a business for millions of dollars, becoming Insta-famous, or getting lucky with Bitcoin. While those are fascinating and inspiring, they’re not easily replicable. So, this post isn’t going to cover any of those things. In fact, in my opinion, my wealth-building strategy is quite boring. The great news is that because it’s boring, it’s fairly simple and thus replicable.
Not all of us have the time and energy to create a business someone’s willing to buy for millions of dollars. But we can all spend less than we make and put some money aside so it works for us.
So you want to know how to get rich? In this post, I’ll share with you as much as I can in one blog post about how to get rich from my personal experience.
Note: This post may contain affiliate links that allow this blog to earn money without a cost to you. Many thanks if you use them. Please read my disclosure for more info.
Define Rich for Yourself
Before we get started, let’s take a moment to define rich. Some people think being rich has to do with driving a nice car or living in a big home. While that may make someone look rich, the truth is that looking rich and being rich are two very different things.
My definition of “rich” is having a net worth that is high enough that I could live comfortably off of the growth and income provided by my assets alone. For me, being rich has to do with material wealth, but the purpose of what wealth is to give me more freedom, not necessarily more things.
I don’t think there’s a wrong way to define “rich,” but I think it’s important for you to think about how you define rich. Now, let’s move on to how to actually get rich.
How to Get Rich in 2 Simple Steps
There are two simple steps to getting rich, and a bunch of ways to do each of those two steps. If you want the TL;DR version, check out this outline, and feel free to click below to jump to the section that interests you the most.
Step 1: Spend Less Than You Make
This is simple, but it’s not always easy. Below you’ll find my favorite ways to spend less than you make.
1. Create a Budget
The easiest way I’ve found to spend less than you make is to live with a budget. A lot of people hear this word and have an instant negative reaction. It can be triggering- maybe when you were little, your parents told you something like, “No, you can’t have [insert something you really wanted]. It’s not within our budget.” I get it. Here’s the thing, if you don’t have a plan for your money, it can easily get blown, and you will never achieve your financial goals.
If your goal is to get rich, then you’ll need to get your money working for you (more on that later), but the only way to do that is to spend less than you make. A budget is simply a tool that helps you do just that, no matter what your income is.
Let me illustrate my point with some numbers. If you take home $50,000 a year and spend $60,000 a year you will be in debt and won’t have any money that you can put to work for you. If you make $500,000 a year and spend $600,000 a year, you will be in a similar situation. The way I define rich, neither of these people will ever be rich because they will always be a slave to doing whatever it is they do to earn money. Plus, both of these people will continue to go deeper into debt because they will be continually adding more debt and accruing interest.
I want to be clear that a budget is not about deprivation. A budget is simply about creating a plan for your money that aligns with your financial goals. A budget simply helps you align your spending with your goals and what you can afford. That’s it. If “budgeting” triggers you, you may have been doing it wrong.
So, if you don’t have a budget, learn 7 Simple Budgeting Steps and get started ASAP- it’s the first step to becoming rich!
2. Don’t Overspend
Another great way to spend less than you make is to not overspend. Does this mean stop spending on everything? Absolutely not. Does this mean stop spending your money on things you enjoy? Not necessarily… Does this mean you stop spending money on things that are NOT important to you? Hell yeah! Why would you spend money on things you don’t care about?
Remember the two examples I gave above, one person that made $50,000 a year and spends $60k, and another person that made $500,000 a year and spends $600k. They’re both guilty of overspending and need to do something to cut back their expenses by at least 20%.
Here are some of my favorite hacks for avoiding overspending regardless of your income level:
The Big Four
For the average household, housing, transportation, income taxes, and food are the categories where people spend the majority of their income. So, if you’re trying to reduce your spending, I think these are great places to start making adjustments because one relatively small change can make a major impact.
How to Decrease Housing Costs
Housing is really expensive right now. However, there are still ways to keep this cost relatively low. One easy option is to live in a house or rental that is cheaper than what you can afford. For example, you may be able to afford a two-bedroom apartment without a roommate, but a one-bedroom apartment or having a roommate could help lower your costs, thus giving you more money to save each month. This is just the tip of the iceberg. If you’re interested in learning more strategies for saving money on housing, check out How to Get Free Housing Through House Hacking.
Also, keep in mind that the more house you have, the more expensive other things associated with your house are going to be. Think: heating your house, cooling your house, maintenance, furnishings, insurance, property taxes, etc.
How to Reduce Transportation Costs
Images of “rich” people conjure up thoughts of rolling around in a decked-out G-Wagon. However, your net worth will not grow quickly when you have a high car payment and a gas-guzzling car, not to mention a car with high insurance and maintenance costs. More practical transportation options have a lower monthly cost, get betters miles per gallon (MPG), and have lower maintenance and insurance costs.
“But Rachel, I love fancy sports cars! They’re important to me!”
Great! If you can afford them, and they’re more important to you than your other financial goals, don’t let me stop you from rolling around in that sweet ride. I’m just giving you options here. Remember, personal finance is personal.
Learn More: 75 Money Hacks That Will Save You a Fortune
How to Decrease Income Taxes
If you have a job that pays you as a W-2 employee, you’re probably paying quite a bit in tax. This is especially true if you are a high earner. One glorious way to reduce your taxes (that also helps you save money) is to invest in tax-advantaged retirement accounts like a 401(K) or 403(B). Specifically, if you can afford to max these accounts out, you’ll save the maximum amount on taxes because you’ll be reducing your taxable income (and thus your taxes) to the highest extent allowed.
Here are some additional ways to save on taxes…
HSA/FSA
Another way to reduce your taxes is to have an HSA or an FSA. Without going into a lot of detail, both of these allow you to use pre-tax money on healthcare expenses. They allow you to reduce your taxable income and set aside pre-tax funds for healthcare expenses when they do come up.
Dependent Care FSA
If you have children or a relative that cannot care for themselves and an employer that offers a dependent care FSA benefit, you’re in luck! A dependent care FSA allows you to put pre-tax money in a special account that can be used for things like childcare, summer camps, eldercare, etc. This is helpful because it reduces your taxable income (thus saving you money on tax) by setting aside pre-tax dollars for dependent care.
Business Write-Offs
Another great way to reduce your income taxes is to have a business. Even if it’s a small side hustle, having a legitimate business allows you to write off expenses that “normal people” who aren’t business owners wouldn’t be able to write off. If you’re a business owner, you could probably write off the following: phone bill, internet, a portion of your rent/mortgage for your home office, office supplies, business-related travel, business-related meals, business-related training, and so on.
I’m a visual learner, so here are two scenarios. Both scenarios include two working parents with a combined income of $150,000 and one child under the age of 6. In scenario one, they don’t take advantage of employer benefits that allow them to reduce their income taxes, and in scenario 2, they do.
| Combined Gross Income | $150,000 |
| Less Standard Tax Deduction | -$25,100 |
| Don’t take advantage of any other write-offs | – $0 |
| Taxable Income | = $124,900 |
| Total Tax Owed (before credits, based on 2021 tax tables) | $18,975 |
| Less Credit for Child & Dependent Care Expenses | -$2,960 |
| Less Child Tax Credit | -$3,600 |
| Net Total Tax Owed for Year (based on 2021 tax tables) | = $12,415 |
| Combined Gross Income | $150,000 |
| Standard Tax Deduction | -$25,100 |
| Maxed out 401(k)- both spouses ($19,500 x 2) | -$39,000 |
| Dependent Care FSA | -$5,000 |
| Healthcare FSA | -$1,000 |
| Taxable Income | = $79,900 |
| Total Tax Owed (before credits, based on 2021 tax tables) | $9,193 |
| Less Credit for Child & Dependent Care Expenses | -$1,500 |
| Less Child Tax Credit | -$3,600 |
| Net Total Tax Owed for Year (based on 2021 tax tables) | = $4,093 |
See! Taking advantage of the tax write-offs saved the second family $8,322 in a single year!
How to Reduce Food Costs
An easy way to reduce your food costs is to eat at home and try to limit the amount of food you waste. Does this mean every meal needs to be at home? No. Does it mean no Starbucks ever again? Not necessarily.
Everyone is unique in both their preferences and abilities. If you have the ability to live with your parents (thus saving on housing costs) and enjoy eating out more often, great! Do that. However, if you’re stuck with high rent and no house hacking opportunities, maybe cutting your food costs by taking your lunch to work is a good way to save money for you. And let’s face it, eating out usually isn’t the healthiest option. So cooking for yourself could save you on healthcare costs down the road.
Getting Creative
I personally love to get creative and treat reducing my expenses as a game. For example, I enjoy going out to bars with friends, but $15 drinks can hurt after a few rounds. So, I decided to create potluck nights where I invite a few friends over. We all bring an appetizer and a drink to share. We have just as good of a time and save a lot of money with this strategy.
I also enjoy shopping for cute clothes, but I make it my personal mission to get the lowest price I can. I use apps like Fluz and websites like Rakuten (use this link to get $30) to get cash back on my purchases.
Another great option is to buy second-hand. A quick search on OfferUp or Facebook Marketplace can sometimes find me things I’m interested in purchasing for over 50% off the retail price.
Putting it all together
How aggressive you want to be in avoiding overspending is up to you. To make the biggest impact, I’d recommend looking at your expenses and trying to optimize your spending where it will make the biggest difference. For example, moving to an apartment that will save you $500 a month will get you to your goals much faster than cutting out one cup of coffee each month. If you really want to go wild, go through your spending and optimize every single category. Remember, there’s no need to optimize to the point of unnecessary deprivation. It’s about finding a balance between consciously enjoying the things you spend money on while also leaving money left over so your money can be put to work to make you rich.
3. Increase your Income
Another way to spend less than you make is to make more. If you don’t feel like cutting back or using any of the strategies I listed above to reduce your expenses, that’s ok, you can still become rich. You simply need to keep your current spending habits stable (i.e. don’t start spending more when you make more). Then, increase your income. As your income increases but your expenses remain the same, you’ll be able to save and invest the difference getting you closer to becoming rich.
You may be wondering how you increase your income. Don’t worry, I got you…
Negotiate
Potentially one of the easiest ways to make more is to simply ask for more money. One conversation could have a huge impact on your future, you just need to be brave enough to have the conversation.
Change jobs
If you don’t want to negotiate with your current employer, or if you tried and they said no, you can change jobs. As someone that’s been on many hiring committees, I can tell you from experience that you are much more likely to get a large raise from jumping from one employer to the next than you are from staying at one place long term.
Learn More: 9 Easy and Profitable Online Work at Home Jobs
Uplevel your skills
Another great way to increase your income is to increase your knowledge and skills. As you become more valuable in the workplace, your salary will start to increase as well. If it doesn’t, you probably need to negotiate or change jobs more often.
Learn More: Gold City Ventures Course: E-Printables Side Hustle Course Review
Start a side hustle
Another great way to increase your income is to start a side hustle. This actually has multiple benefits. As mentioned before, a side hustle can help you reduce your taxable income because you can now write off business expenses. Starting a side hustle is also a great skill-builder. What you’ll learn from starting a business is invaluable even if your side hustle fails, you’ll walk away with valuable skills that employers are looking for. Finally, starting a side hustle can increase your income directly as it makes money. For example, I took one course and created a side hustle that generated over 6-figures of income and allowed me to quit my full-time job.
Learn More: How to Start Etsy Business: Insane Tips from a 6-Figure Etsy Seller
Step 2: Put Your Money to Work
Once you’ve decided on your strategy for spending less than you make, it’s time to take what’s left over and put it to work.
1. Pay off Debt
If you’re in debt, you’ll need to use your leftover money to pay off your debt, specifically your high-interest debt. On average, investing in the stock market will bring in around 7% per year. If you have debt at an interest rate lower than 7%, you may want to pay off debt while also investing. However, if your debt is over 7%, specifically if it’s credit card debt and in the 20%+ range, then you should work diligently to get that paid off ASAP because it’s robbing you of your ability to get rich.
2. Invest in the Stock Market
Now, if you don’t have debt, or if it’s low-interest debt, then you can put your money to work by investing it in the stock market.
Where to invest?
I personally like to invest with Vanguard because they have incredibly low fees (remember, in everything we do we’re trying to avoid overspending, investment accounts included). I chose to use Vanguard as opposed to a financial advisor because it also allows me to save on the yearly fees a financial advisor would charge me. That being said, I’m comfortable with my understanding of stocks and investing. If you don’t feel comfortable, working with a financial advisor may be right for you.
What to invest in?
I personally like to invest in either the S&P 500 the total stock market. In Vanguard, the total stock market is called VTSAX. I like this because it is simple, it’s easy (no stock picking, extensive research, etc.), and it works. Even Warren Buffet has been quoted as saying this is the advice he’d give his widow when he passes away. Also, check out this bet for an interesting experiment that was done in relation to the S&P 500.
3. Invest in Real Estate
Another option is to invest in real estate. My husband and I bought our home in 2012 when the market was at all-time lows. Because of that decision, we were able to lock in a low mortgage (thus reducing our housing expense), and we’ve been able to build equity. We’ve also invested in some private real estate funds and have done well with those.
There are many ways to invest in real estate, including owning REITS, owning rental properties, doing fix and flips, owning short-term rentals (like AirBnBs), and so on.
I’ve seen people get rich quickly by investing in real estate, but I’ve also seen people lose everything quickly because of real estate.
I personally tend to lean towards stock investing because it is simple and easy, whereas real estate seems like more of a headache to me (i.e. dealing with tenants).
4. Create Businesses
Finally, another way to put your money to work is to use it to create businesses. For example, I bought a course on how to start an Etsy business for a few hundred dollars, and I turned that into a 6-figure business.
I’ve also invested money to create a blog, and now I make affiliate income from my blog.
A word to the wise: business ownership can be extremely profitable, but most businesses fail. I failed multiple times with various business endeavors to get to where I am today. If you want to start a business, it’s important to have grit and see your failures as learning opportunities.
Also, part of why I love investing in stocks is because it allows you to become a part-owner of businesses that are already successful.
Learn More: Side Hustle Ideas: Over 200 Ways to Make Money on the Side
How to Get Rich Quick
In this day and age, we’re so used to getting everything we want quickly (I blame Amazon and next-day delivery). But when it comes to growing substantial wealth, quick is a relative term. Want to get rich within a year? I guess you could marry someone that’s already rich (but remember, if you marry for money, you’ll earn every penny). Maybe you could find some whale barf or win the lottery. All of these things are possible, but they’re not likely.
I’m more of a fan of things that are within my control. So in a nutshell, here’s are my top tips based on what I did:
- Set your specific financial goals
- Determine how much money you want to accumulate by a certain date
- Track your net worth
- Remember: “What gets measured gets improved”
- Be intentional with your spending
- Map out how much you need to save to reach your financial goals
- Budget accordingly
- Optimize all of your spending
- Find ways to reduce your housing expenses
- Keep your transportation costs low
- Make delicious healthy meals at home and eat leftovers
- Use coupons and stack savings
- Don’t be afraid to buy used/accept hand-me-downs
- Childcare: use a childcare FSA if you can
- Max out your retirement accounts
- Roth IRA, 401K/403B, etc.
- Invest in stocks
- Vanguard VTSAX
- Remember: make it automatic and let time and the power of compounding interest take over
- Invest in real estate
- If you can find a good deal and the numbers make sense
- Start a business
- Ideally, one that creates passive income
Bonus Tips for How to Get Rich:
Here are some additional tips I’ve learned over the years on how to become rich.
Learn from rich people
One of my favorite ways to learn about how to get rich is to learn from people who are rich. If you don’t have a lot of money to spend on training programs, here are some low cost and free tips for learning from rich people:
Read
There are a ton of great books written by extremely wealthy people. Some of my favorites include: Your Money or Your Life by Joseph R. Dominguez & Vicki Robin, I Will Teach You To Be Rich by Ramit Sethi, The Millionaire Next Door by Thomas J. Stanley and William D. Danko, and The Simple Path to Wealth by J. L. Collins.
Listen to Podcasts
Ever wished you could be a fly on the wall while rich people were talking? That’s exactly what podcasts are! Here are some of my favorite podcasts about money:
Can Do Attitude
I am the first person to admit that I’ve had a tremendous amount of privilege in my life that has allowed me to be where I am today. That being said, I do think having a can-do attitude is important if you want to become rich. One book that really changed my life and my attitude was Change Your Questions Change Your Life by Marilee Adams.
Frequently Asked Questions
Here are some frequently asked questions about becoming rich.
How Much Money Do I Need to Be Rich?
As you’ll recall, my personal definition of “rich” is having a net worth that is high enough that I could live comfortably off of the growth and income of my assets alone. If you define rich that way, too, you might be wondering, how much money do I need to get to that point.
Simple.
If you’re happy with your current lifestyle, figure out how much you spend every year and multiply that number by 25. For example, if you live off of $50,000 each year, then you’d need $1,250,000 invested to be considered rich by my definition. If you needed $100,000 a year, then you’d need $2,500,000 invested.
You may be wondering where I got 25 from. Basically, in the personal finance space, there’s this thing called the 4% rule. In an oversimplified nutshell, the 4% rule suggests that if you withdraw 4% of your investment portfolio every year, it’s pretty unlikely that you’d run out of money.
If you really want to know where I got the number 25 from, take a look at this formula:
4% x 25 = 100%
In this scenario, 4% comes from the 4% rule and is how much you need to live off of each year. 100% is the total amount of your portfolio (think: your nest egg). Since you’re trying to solve for the total amount of your portfolio (aka 100% for your unique situation), you simply multiply how much you need each year by 25.
Here’s a bit more of an illustration for people that like to see the numbers.
If you can live off of $80,000 per year, then the formula would look like this:
$80,000 X 25 = $2,000,000.
Now let’s see this in action once you retire…
If you decide to use the 4% rule and take 4% of your investments out each year, then you would do the following calculation in your first year:
4% x $2,000,000 = $80,000
“But Rachel, now I only have $1,920,000 in my portfolio ($2,000,000- $80,000)! That will only last me 25 years because $2,000,000 divided by 80 = 25!!!!” How can someone retire at 40!? Do you expect them to die by the time they turn 65!?
Your math is correct. BUT you forgot to calculate one important thing: that $1,920,000 is invested in the stock market and should get an average of 7% of return every year.
So, before next year rolls around you should have $2,054,400 (aka $1,920,000 x 7%) in your bank account. While you’re at it, you also need to consider inflation… Here’s what you would do…
Next year when you go to take your 4% out, you would do the following:
4% x ($2,000,000 x inflation rate) = X
Assuming the inflation rate is 2.5%, it would look like this:
4% (2,000,000 x 2.5%) = $82,000
See? Every year you take some out, but on average, every year, the market will go up about 7%. If the stock market goes down, you still take out your 4% adjusted for inflation. If the market skyrockets and goes up by 30% in one year, you still take out 4% from the original amount you had invested, adjusted for inflation…
Pretty cool, right?
How to Get Rich When Young
So, you want to get rich while you’re still young? Here are my top tips:
- Focus on building in-demand skills that are scarce and pay well.
- Avoid debt, especially high-interest debt.
- Don’t be afraid to ask for a raise every year or change jobs to get paid more.
- Keep your expenses low.
- As your income grows, don’t inflate your lifestyle.
- Invest the extra money you have in income-producing assets, ideally in tax-advantaged accounts.
- Have a side business.
How to Get Rich Easily
I personally think the easiest way to get rich is to invest in the stock market. You can set up automatic investments once and then simply allow time and the power of compounding interest to work its magic- it doesn’t really get easier than that.
How to Get Rich from Nothing
If you are starting from scratch, I’d recommend growing your skills and knowledge, specifically in industries that are in demand and pay well. This could mean going to school, but it could also mean working as an apprentice or teaching yourself by watching YouTube videos or other online content.
I also think it’s important to develop your network. Surround yourself with people that know more than you and learn from them. Even if you can’t do that in person, with the internet, you can now learn from people virtually from all over the world through books, blogs, courses, podcasts, YouTube, etc.
How to get rich off stocks?
Invest in them! You can try to play the market and pick a winner, but you’ll probably lose. My strategy is to invest in an index fund like Vanguard’s VTSAX and let time and compounding interest work their magic.
Why Do the Rich Get Richer?
The rich get richer because they invest in income-producing assets. For example, if a rich person had $1,000,000 invested in the stock market and the market returned 7% each year, they could take $70,000 ($1,000,000 x 7%) out every year just from the earnings and never touch the $1,000,000 principle. In other words, they remain a millionaire and have $70,000 a year without having to do anything to work for it. Furthermore, if they had other sources of income and didn’t need to take that $70,000 a year out of the market, then that $1,000,000 would turn into $1,070,000, and then they’d earn interest on that, and so on and so forth. Compounding interest would work to their benefit.
According to the rule of 72, at a 7% interest rate, their investment would double about every 10 years!
Putting It All Together
Becoming wealthy is quite simple, but it’s not always easy. If you want help on your journey to becoming a millionaire, I’ve created a free masterclass that I’m sure you’d enjoy.
Learn More: Saving Money: 5 Money Lessons You Need to Know
