How Do People Get Rich? A Look At Wealth Accumulation Strategies

How To Get Rich

How do people get rich? This is something that I’ve been researching ever since I was a freshman in college. I’ve always been interested in learning from others on how do people get rich.

I was reading Free Money Finance the other day and was enamored with one of the interesting articles that discussed the most important factors making people wealthy. FMF presented results from a book that showed how a group of individuals made money in life and eventually became what is considered, “wealthy.”

How do people get rich? We all talk about how we want to make lots of money in the future but do we really know how to get there? Why not follow what others did? The findings come directly from individuals that got wealthy in life and took some time to reflect on their success.

Of course you don’t have to listen to a 20-something behind a computer screen but I hope you take the results of real life millionaires seriously.

The top 2 reasons the people felt they got rich/wealthy in life:

Habitual Saving

Wait a minute. So you actually have to save money to accumulate wealth? This shows that getting rich is not a slow process. It is a process that involves spending less than you earn for as long as you live. Are you willing to ditch the credit card and spend less than you earn? If so then slowly but surely you will begin to accumulate money in your bank account. As time goes on, and with compound interest on your side, your small weekly savings will end up a nice large sum. You could argue that this is boring and slow but I would rather know that I’m on the right track as opposed to gambling with my hard earned savings.

Sound investing

This doesn’t include chasing momentum or constantly seeking the next hot stock. It involves investing your money into investment vehicles that you understand and trust. It doesn’t matter if you invest in stocks, mutual bonds, bonds, CDs, or a online savings account, as long as compound interest is on your side (and the market doesn’t completely crash) your savings will grow.

Before you can begin investing, make sure you have found a debt elimination plan to get rid of all of your debt.

At the bottom of this list of factors influencing how everyone got wealthy, guess what was there? The two least common methods of getting rich over time:

An inheritance

I wrote about this in my post on how to get rich quick. If you plan on taking it easy until you inherit money you will be in for a surprise. After all of the time has gone by and once you figure out what you were left behind with, you will still have to pay all of the relevant taxes. Once that is all complete you will realize you are far from rich. If  you do plan on inheriting some decent money don’t let it be your saving grace. The money will help you with your savings goals but it will usually not provide you with financial independence.

Starting a successful business

Okay I’m surprised about this one. I know that many small business and new business ventures fail but I still thought starting a successful business was a more critical factor influencing the accumulation of wealth.

I’m guessing the keyword here is “successful.” We can all start a business and make some money from it but we will experience varying levels of prosperity. This probably also includes individuals that have lost money as the result of a new business venture. With that being said, I still strongly believe that college student should consider starting a side business.

Other factors on getting wealthy that made the list (top to bottom): a high paying job, an advanced degree, buying a first home, and getting married.

What is your take on these various wealth accumulation strategies? Are you working on any of them? Would you like to improve on any areas? Please do share with us!

Tell a friend... or 30!
You want more?

Comments

  1. Edwin says

    My view on this topic is that someone first needs to get out of the point in there life where all they can pay for (responsibly, without credit) is their needs. This includes a place to live, transport to the job, food, clothing, etc.

    The best way to do this tends to be getting an education so you can increase your value and get yourself a higher paying job (or advance your skills in your current job). Once you’ve begun a career, you can surpass living on just your needs and diversify into wants and savings.

    At this point people tend to go many different ways. Some may spend nearly everything they make on a nice car, house, cloths, etc. and put very little into savings. Others may live on their tiny previous salary and put everything into savings. I imagine most do a balanced version of the two.

    At this point the definition of rich seems to get somewhat fuzzy to me. Sure the person who purely saves all of their money until retirement has more in the way of assets than the person who spends all of their money. But that person also may not have lived life to the fullest (taking vacations, etc.) during their working years. On the other hand the person who spent all of their money may have run into a very big issue (medical problems unpaid by insurance) and have no money to deal with it and are in the poor house later in their lives.

    I think it’s very hard to get a good balance between living a good life (what else is it for?) and accumulating assets.

  2. says

    You brought us to the perfect point Edwin- striking a balance between today and tomorrow.

    There are those individuals that soley live for today. They believe in instant gratification. They want to travel the world, have a nice car, wear the nicest clothes, and buy the many other luxuries of life. They are not overly concerned with the future because they believe they will have a steady income for many years to come.

    There are those individuals that soley live for tomorrow. They save every penny. They wear a jacket inside in the winter to save on heating. They never buy coffee. They stay in. They will be prepared for tomorrow but at what expense.

    My goal over the last few years has been to strike the perfect balance. I love to travel but I know this means I will have to sacrifice. I know that I can’t go out as often and I can’t spend as much money on clothes.

    My opinion is that striking a financial balance relies greatly on your ability to sacrifice and delay gratification. What do you/and the readers think?

  3. Edwin says

    I think people tend to think of their potential income as their current income. By this I mean someone who perceives themselves performing well at work may be expecting a promotion, this might make them feel like they can spend as if they were guaranteed that promotion. It works the same with people about to graduate from college.

    In this case people really do have to make the hard decision to delay spending any of that money until they actually have it.

    Another factor is the keeping up with the neighbors syndrome where people will spend more than they can to keep up with neighbors or friends. This can mean anything from going to entertainment venues slightly out of their price range to buying a better car because they feel out of place.

    Obviously it’s not as simple as just those two examples but those are two major ones that pop into my mind.

  4. says

    Hunh, interesting results. I can see habitual saving and sound investing as keys to developing wealth; it’d be hard for most of us to become comfortable (to say nothing of rich) without good amounts of saving and some investments. The inheritance comments also make sense; with the exception of the occasional odd heiress, most of us don’t have wealthy parents or grandparents sitting on gobs of cash we’ll eventually inherit.

    The one that surprised me (and you. to judge from your comments) was starting a business. I suppose that the successful ones are so popular and famous (Bill Gates and Microsoft, Steve Jobs and Apple, the Google guys, etc.) that you tend to ignore the millions of others who either fail or simply experience more moderate levels of success. Still, like you, I think spreading your entrepreneurial wings is a good thing; at the very least, you’ll have that much more experience for the future.

  5. says

    When you mention as a method to get wealthy, I think there is a specific distinction to consider.

    Majority of people today are self employed while few actually run businesses.
    Whats the difference? Ask yourself, what will happen if you walked away or took a day off from your business tomorrow, would it run or would it crush?

  6. says

    Great points and I have nothing substantial to add but I would like to switch gears.

    Gentlemen I want to ask you this question: have you found your balance yet? If not, what steps are you taking to find your balance?

  7. nick says

    1. Get a basic college degree, preferably business, as quickly and cheap as possible. Don’t waste too much time in school ( I have a PhD and have not forgiven myself in the last 15 years for doing it – you will live and die poor)
    2. Find a friend, neighbor, relative who is running a business (even if it is a small operation). You will learn the essence of business in the trenches.
    3. Start your own business building on 1 and 2. Do not waste $$s and especially time, in grad school, and you won’t have super-high school loans. Half the professors anyway can’t run a lemonade stand profitably but will lecture on business. Do you think Bill Gates, Mark Zuckerberg, Steve Jobs all needed college? But they all did entrepreneurial stints in high school/early college.
    Best of luck

  8. Tony Lexus says

    This is a subject that has interested me ever since I can remember. Although there are several tried and proven methods to get rich, what I have gathered (and what the rich say is the significant difference) is that rich people have a totally different way of thinking. When the majority of people are faced with financial problems, we react in the only way we know how, the only way we’ve been taught at school and most likely by our parents, we go out and get a JOB. However, when rich people are faced with a financial problem, they start a business or market a product that is in high demand, many of their endeavors fail, but the ones that are successful are usually enough to set them up for 5 lifetimes. They don’t worry about how they will raise capital or how they will pay their mortgage. It doesn’t make sense to most of us I know, but you can only understand what your know, and your can only know what you have learned. Any comments (or criticism :P) is welcome! I am always open to seeing things from other peoples points of view, Cheers =) !

      • Phil says

        Say you’re getting a PhD. Let’s leave out the arts entirely, which is a total loss financially. Also forget sociology, psychology, and other non-technical degrees. You’re in physics, math, engineering, etc., which are the highest-paying fields to get a PhD in.

        Getting a high-paying career with a PhD–and we’re talking $200,000 at the most–requires going to an elite grad school. Going to an elite grad school is free, but requires going to an elite undergrad school. There are no academic scholarships to any elite undergrad colleges in the US, and every elite college costs at least $40,000/yr in tuition, plus maybe $15,000 in living expenses.

        So here’s what a science career looks like if you go to an elite college:
        – 4 years paying $65,000/yr. Hope your parents are rich; the govt. won’t loan you more than $10K/yr and there are no merit scholarships.
        – 4-8 years of grad school earning $12,000/yr as a TA
        – 4 years as a postdoc earning $40,000/yr
        – Starting salary around $85,000/yr depending on field
        – MAX salary $200,000

        If you go to a non-elite college:
        – 4 years paying $20,000/yr
        – 4-8 years in grad school earning $12,000/yr
        – 4 years as a postdoc earning $40,000/yr
        – Max career salary $125,000
        – You will never be given a grant, get a professorship, or direct research

        This is completely different in Europe and the rest of the world, where attending college is often free, and in any case a very good student can get an academic scholarship to a top school.

  9. Singh says

    I really hate to say this, but this article is 100% wrong. How do people get rich? Let’s break the rich code: Finance. Yes, finance, the rich are the ones who are running the fund management. All of this crap about saving, getting a college degree, saving in your 401k, working 9-5 job is total crap. Instead, join filthy rich businessman business clubs! Yes! That is the damn answer! Networking is the greatest education of all times!

    The actual people who get rich is by creating their own brands. You have unlimited individuals who are college and high school drop outs who are billionaires because the secret to greatest wealth is time. Yes time, if you respect time time will respect you. Time is the greatest most precious asset of rich people. You need to value the time in order to get rich.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>