Getting rich requires education, hard work, and most importantly, a plan. While this isn't an easy feat, there are some proven ways to achieve that goal if you're willing to put in the time and effort. By investing in yourself and the stock market, the chances of a prosperous future are very high.
Steps
Method 1 of 3: Save Money
Step 1. Save your money
Knowing how to save is one of the most important skills to get rich. Although the saying "A penny saved is a penny earned" has a grain of truth, in reality, to make your money work, you need to know how to invest it.
- To save money, just follow one piece of advice: spend less than you earn. It is easier to do this if you have a stable income (which is why it is important to invest in your education), but remember that it is possible to save money regardless of your income, even if the figures are small.
- Start by trying to save 10% of your salary every month. While this is a recommended goal, if that's not possible for you, save as much as you can. Your goal is to increase your savings every month.
Step 2. Create a budget
A solid budget is the first step on the road to wealth. It will help you to identify all your expenses, to control and reduce them. As a result, you will be able to save more money to invest.
- Write in column, on a sheet of paper or a computer text program, all your income for a month. Below, add up all the items to get the total.
- In another column, do the same for expenses. Make sure you don't forget anything. To do this, you can review your bank and credit card statements. Add up all the items in the column to determine your total monthly spend.
Step 3. Identify areas where you can reduce expenses
Look closely at the expense column to find items you can cut. Your goal is to increase the difference between your total income and total expenses.
- To do this, you can evaluate the difference between "wants" and "needs". The former are optional goods, while the latter are essential. Consider your wishes to find items to reduce. For example, you may want a new mobile phone with an unlimited data rate plan, while you just need a simple mobile phone with a 1GB rate plan.
- You can also consider your needs and consider how to reduce them. For example, paying rent is a necessity, but you may be able to find an apartment in a cheaper area of the city or move from a one bedroom apartment to a studio apartment.
Step 4. Create an Emergency Savings Fund
Before investing, you should always prepare for the worst. Experts recommend setting aside the equivalent of three months of expenses, to cover any periods of unemployment, medical emergencies or unexpected expenses.
Once you have prepared your emergency fund, you can use the rest of your savings for your investments
Step 5. Take advantage of the retirement plans offered by your employer
Many people have the option of accumulating severance pay or other supplementary pension funds, in the form of deductions on their paychecks.
- The benefit of these retirement plans is the ability to make your money work by paying less tax. In fact, the sums paid into these funds are subject to a lower taxation than the money in paychecks. This means that if you allocate 5000 euros to your severance pay, you will pay a fixed rate on that sum, lower than the one on your taxable income.
- Ask your employer what the company's policy on severance pay is and make sure you take advantage of all the possibilities available to you. This is a great first step towards wealth.
Method 2 of 3: Invest Your Money
Step 1. Understand the basics of investing
Investments can be very complex, but not necessarily. In fact, by adhering to a few simple basic principles, you can invest your savings and see them grow over a long period of time.
- In general terms, there are a few different types of investments. The main ones are the stock market and bonds. Stocks represent company shares while bonds are sums of money that you lend to businesses or governments, in exchange for regular interest.
- Almost all investors have a combination of debt and equity in their portfolios.
Step 2. Learn about mutual funds and exchange-traded funds (ETFs)
Mutual funds and ETFs are similar, because they are both collections of stocks and bonds. They give you the ability to diversify your portfolio to a level that would be impossible to achieve by investing in one limited company at a time. There are some significant differences between mutual funds and ETFs, so research both before deciding where to invest your money.
- ETFs offer more flexibility and lower fees when compared to mutual funds. They also allow you to pay less taxes, but offer lower capital increases than mutual funds.
- ETFs are traded like normal stocks and their value varies throughout the day. The value of a mutual fund is calculated only once a day, using the closing prices of the securities in the fund's portfolio.
- Mutual funds are managed, while almost all ETFs are not. The securities of a mutual fund are chosen by a manager who seeks to make the most of the fund. The manager actively monitors the market and invests the fund's money according to his analysis.
Step 3. Choose a broker
Decide if you want to use an online broker or a full service. A professional broker has the time and knowledge to help you make good investments; his remuneration, however, is not negligible. If you think you have a good understanding of the dynamics of the market and want to manage your portfolio yourself, you could sign up with a bank that allows online trading, such as Fineco, ING Direct and many others.
- Always consider expenses before opening an account, as well as the minimum required amounts. All brokers charge a transaction fee (from € 5 to € 10, usually) and many also require a minimum initial investment (ranging from € 500 to much higher figures).
- At the moment, there are some brokers that do not require a minimum initial investment, such as Plus500, Markets.com and We-Trading.
- If you want to get help with your investments, you can get financial advice in many different ways. You can go to a bank or other financial institution and talk to professionals who will help you manage your capital. However, consider that these institutions often require high initial investments.
- Some advisors can advise you in many areas, such as investments, taxes, and retirement funds, while others can only carry out your directions. It is also important to note that not all employees of financial institutions have a duty to put the client's interests first. Before entrusting your savings to someone, ask about their background and experience to make sure they are a qualified professional.
Step 4. Regularly add sums to your investments
Instead of investing a lot of money and hoping it's the right time to do it, you can invest over a longer period to reduce risk. This strategy is known as a capital accumulation plan. To adopt it, establish an investment plan (for example once a month) and spend fixed amounts to buy shares. When the share price is low, you will buy more; when the price is high, you will buy less, but the expense will always be the same.
- Imagine that you commit to investing € 100 in company X once a month. This month, the shares cost $ 10 each, so you'll buy 10. The next month, the shares went up to $ 20, so you'll buy 5, and so on.
- Don't liquidate your investments, no matter what happens in the market. There have been 11 stock market crashes since 1956, but each time the economy has recovered far more than was lost. Keep adding investments each month and trust that as time goes by, your wealth will grow.
Step 5. Start investing as soon as possible
The real secret to getting rich is to start making money young. This will allow you to get a good long-term capital, because the interest accrued each year will in turn begin to pay interest.
- For example, if by investing € 100 you have earned 5% in a year, your capital will reach € 105. The following year, you will earn 5% on 105 €. This means that at the end of the second year you will have 110, 25 €. The following year you would earn 5% on 110, 25 €, and so on.
- The results over time are incredible. If, starting 30 years ago, you had invested € 1000 a month, today you would have € 1.8 million. This is the best strategy for creating wealth.
- You can find more information here.
Method 3 of 3: Invest in Yourself
Step 1. Learn the value of education
Secondary and postgraduate education is the best business card for getting rich. A recent study in the United States showed that young adults with a college degree earn, on average, $ 17,500 more than young adults with a degree. Furthermore, the same study found that those who attended college earn an average of $ 3,000 more than those who stopped after high school.
- Studies have also shown that salaries for those with only a diploma are falling over time.
- Research has also shown that those with only a degree are far less likely to find a job than those with a degree.
Step 2. Consider improving your education
The better your academic preparation, the higher your salary will be, so one of the most effective strategies for earning more money is to continue with your studies: this is where the road to wealth begins.
For example, in the United States, the average salary of an associates degree is $ 50,000, a bachelor's degree is $ 64,000, a master's degree is $ 81,000, and a master's degree is $ 81,000. professional degree is $ 115,000
Step 3. Examine your skills, abilities, interests and talents
If you have not received a good education and want to improve it, or if you have already completed your studies but want to pursue a higher paying career, the first step is always to analyze yourself.
- Linking your natural skills and interests to adequate academic preparation is a surefire way to greatly improve your income and take the path to wealth. Ask yourself what your talent is: what things do you do better than other people, or in what areas do you often get compliments?
- Ask yourself what your passion or interest is. For example, you may be interested in a particular subject, such as math, or a specific activity, such as cooking.
- Look for areas where your passions and talents overlap. For example, you may be interested in the human body and be quite good at math or science. These interests are complementary.
Step 4. Choose an academic path that allows you to earn well
Like it or not, in some fields the average salaries are higher than in others and the demand for staff is higher. The ideal situation is to find a highly paid field within your interests. If that's not your case, you should still explore these areas and try to develop an interest in them.
- At the moment, some of the highest paid professionals are employed in the engineering, information technology and business sectors. In the United States, the median salary for a professional working in these industries is $ 75,000 per year.
- If you already have a degree and want to continue your education, jobs in the world of law, medicine or dentistry can earn you well over € 100,000 a year.
- Consider even some of the humbler jobs as a career. If you like manual work, you can earn a lot of money by working as an entrepreneur. Generally, plumbers and those involved in heaters and air conditioners earn, on average, more than 50,000 euros a year. Furthermore, the earning potential is unlimited if you create your own company.
- Before choosing an academic path, do some research on the employment prospects that the market currently offers and what the average salary is. Remember, a field that is all the rage today could be saturated in 5-10 years. This research will help you ensure a return on investment for your school preparation.
Step 5. Find funds for your education.
Unfortunately, education comes at a price, but if you choose your degree path wisely, you will recoup your investment with interest.
- Consider saving a year or two before college. This way you will have to apply for a lower loan and you will have less debt once you graduate.
- Choose your base of operations wisely. If living in a big city is not your priority and you have no other family obligations, choose less expensive areas to live and attend college. In a small town you can save thousands of euros in expenses.
- Apply for government funding to pay for your education. If your family's income is within the limits to apply for state funding, you may be able to pursue a degree program without spending a lot of money.
Step 6. Never stop improving
Work on your professional, leadership, financial, social and general skills. If you are considered a valuable asset, your chances of success will increase, whichever path you choose. Continuing development of your skills will help you make better use of your financial resources.
