How to Get Rich (Legitimately)

Respond to any advice about how to get rich—especially quickly or easily—with a wealth of skepticism. The strategies that work to grow your bank account usually involve hard work and sacrifice. Growing wealthy, if it happens at all, will probably happen gradually, and only after working hard to earn income and then carefully stewarding your money over time.

Here's a list of some of the best ways to do that, from budgeting strategically to starting your own business.

How to potentially get rich

1. Spend less than you earn

Bringing more in the door than you send out is the first principle of growing your savings. Spending adds up fast; if you’re not watching carefully, it’s easy to find your paycheck won’t stretch as far as you need it to.

Be particularly alert to big, one-time expenses you haven’t planned for—a new furnace, a medical bill—that can suddenly increase your spending. Even those larger expenses you know are coming, like an annual insurance premium payment or a big quarterly water bill, can push your outflow over the top if you haven’t been planning for them.

There are a variety of ways to motivate yourself to grow your savings, including using automatic deposits, restricting your spending to cash, and deploying some form of piggy bank to put aside a little bit each month.

One of the best ways to get rich, if you have the fortitude for it, is to change your lifestyle so that you can spend drastically less than you make. Adherents of an increasingly popular movement called “Financial Independence, Retire Early” (FIRE) bring their expenses so far down that they are saving a large portion for their income for years in order to retire in their 30s or 40s.

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2. Get good at budgeting

The best—and easiest—way to make sure you spend less than you earn is to become adept at budgeting your money. Making a budget requires accounting for all of your expenses, including all the odds and ends of daily life such as cleaning supplies, car maintenance, and nights at the movies. This allows you to figure out how much you’re spending on each element of your life and account for any extra. You’ll see how much you need to adjust the non-fixed line items, such as dinners out, clothes, and gifts.

The next step is aligning these expenses with your income and then making sure the money in your account is properly allocated. There are various methods to use, including zero-based budgeting that matches every dollar in your account with a specific expense or savings category, and 50/30/20 budgeting that divides up your income, assigning each portion to needs (50%), wants (30%), and debt or savings (20%).

Digital tools can be a big help. There are various apps that connect to your checking account and allow you to keep tabs on where all your money is going. A couple of the best are Mint and You Need a Budget.

3. Pay off debt

Even a good budget will be blown to smithereens by a high debt load that needs servicing, especially if the interest rates on those debts are high. Unpaid debt will continue to grow and damage your credit, seriously hindering your ability to build wealth. Paying off debt should be a priority.

Addressing high-interest debt like credit card debt should be the first thing you do with your money. Then continue to service lower-interest debt such as student loans and mortgages religiously, paying extra on the premium whenever you are able. One way to make sure you pay your debts on time is to set up automatic payments.

4. Save an emergency fund

It’s important for your financial stability to squirrel away a decent chunk of change for a rainy day. Saving an emergency fund should be a high priority, right after paying down your highest-interest debt.

Think of it this way: An emergency fund functions as an ambulance for your wealth-building efforts. If you have it in place, then a crisis won’t derail your progress—you’ll be taken care of. If you don’t have an emergency fund, a crisis will require you to go into debt, which will then only escalate the problem.

The ideal emergency fund will pay for three to six months of living expenses in case of job loss or another major setback like a medical crisis. It’s essential to keep your emergency fund somewhere you won’t be tempted to dip into it on a daily basis, such as in a savings investment account.

5. Start passive investing

Investing any extra money you have in the stock market is a great way to start building your wealth. Online tools allow you to easily put your money in investments that keep pace with the stock market—a strategy called passive investing.

This type of investing much different than active investing, a method that is still widespread but losing ground to the passive approach, in which active money managers try to “beat” the market by buying specific stocks. Active investors demand high fees, which can be a drain on your investment earnings.

Of course risk is inherent in investing in the stock market. You’ll want to invest with a view to the long term—the market will fluctuate, and it’s important to stay the course instead of selling your shares at the first sign of trouble. But even if you stand firm in the face of market ups and downs, it’s important to know that there’s a possibility you’ll end up with losses over time. The good news is that over a long enough time horizon, the market always goes up.

6. Avoid taking on debt

One of the most effective ways to increase your riches is to avoid spending money you don’t have. A central principle of your financial life should be to resist taking on debt unless it’s completely necessary or it’s likely to allow you to earn even more money.

Good reasons to take on debt are education aimed at a specific career goal, paying for emergencies when you have no other choice, and building a business that is likely to give you a high return on your investment.

Most forms of debt, however, are best avoided. Credit card debt comes with such high interest rates that you should treat it like having your financial house on fire. It’s best to buy big-ticket items like cars and appliances with cash down if possible, though it can admittedly be difficult to save the appropriate amounts by the time you desperately need them. And taking on personal loans to buy luxuries like vacations and expensive clothing only hinders you efforts.

7. Invest in yourself

Investing in your own education so you can pursue a lucrative and satisfying career track is money well spent.

Even after your formal education is complete, investing in developing your skills is usually worth the expense. For example, pursuing sales training or marketing courses will dramatically increase your ability to profit off your business-building efforts.

There’s also the fact that the “future you” will be happy that the past you was smart with your money. So investing wisely early on is a powerful form of investing in yourself and your future. Putting some of your money into passive investing is a good way of valuing yourself.

8. Start a business

There’s no guarantee that your business will thrive—in fact, some 20 percent of U.S. businesses fail in the first year, and a good half fail by the end of year five. But those businesses owners whose companies survive and grow have a good chance of boosting their fortune's substantially.

Proliferating digital tools and internet connectivity have made starting your own venture easier than ever been before. Do market research before launching your business so you know for sure there’s a demand for what you have to offer. Speak to advisors on business topics like bookkeeping, marketing, and management. Take on debt strategically to grow your operations, but make sure you’re using your resources as carefully as possible to steward your fledgling venture.

9. Earn more money

It’s much easier to spend less than you earn if you earn a lot. And even if your expenses are already under your earning threshold, making more will allow you to pay down debt faster or boost your savings rate. Three good ways to start making more money are to get a raise, find a higher-paying job, or make extra money on the side.

Asking for a pay raise is a normal part of business life, so don’t let the process intimidate you. Especially if you’ve served your employer well for a long period, negotiating a raise may be in order. Another way to get a raise—and potentially a much bigger one—is to find a new job that will pay you more than the previous one. This is a time-intensive, sometimes arduous task, but the payoff in higher salary may be worth it.

Another popular way to earn extra money is with a so-called side hustle. You can take on some freelance gigs and develop a handmade product to sell online. You can rent your home or an extra room out on Airbnb or start engaging in the sharing economy as a ride-share driver. There are many ways to make extra income to pay down debt or increase your savings.

10. Avoid get-rich-quick schemes

The next time Agnes from book club approaches you about joining her in selling the latest craze in weight-loss supplements, tell her that your days in sales are over. When that guy you met at the gym says he’s looking for investors for a once-in-a-lifetime opportunity, conveniently realize your workout is over.

In short, stay away from get-rich-quick schemes. These plans are much more likely to lose you money than they are to result in gold raining from the sky. They are often designed as pyramid schemes, where people get money for recruiting others. That means that those recruiting you aren’t actually interested in your financial wellbeing, but instead want to take advantage of it to line their own pockets.

Even fast-money-making options that aren’t pyramid schemes should fill you with suspicion. Because the fact is that there is no guaranteed way to make a lot of money fast. Anyone who tells you so is likely trying to take advantage of you in some way. Most people who grow their wealth do so over time, with great sacrifice and hard work, and by seeking out those who can help them, not by being sought out by those who are big on hard-to-believe promises.

11. Open a saving account

As you start managing your money well and building up your savings little by little, it’s important to store it in an account where it can work for you. For the portion of your money that you don’t plan to spend or invest, open a savings account where it can gradually grow. This is one of the most basic steps on your wealth-building journey.

Banks will often provide you one automatically when you open a checking account, but you will want to shop around to find the savings account that works best for you. Traditional savings accounts come with a set interest rate that is higher than that of a checking account but usually below the returns provided by investment accounts.

A good alternative, Wealthsimple’s Smart Savings account, is like an investment portfolio—the funds you keep in the account are invested in a low-risk exchange traded fund (ETF) portfolio that will bring you dividends. Just like a traditional savings account, it keeps your savings safe and is suitable for short- or long-term saving.

12. Stick to your plan

While there’s no guaranteed way to get rich, there’s a guaranteed way of not building wealth: abandoning all your best-laid money-management strategies at the first sign of trouble. Building wealth is a long-term project; it won’t work if you don’t have the staying power to see your plans through. So get ready to approach your plans with determination.

Use the power of technology to make it as easy as possible to stick with your intentions. This means working with budgeting apps to stay on track, automating your savings and debt payments, using a robo-advisor to do passive investing, and leveraging next-gen tools to make extra money or start a business.

The good news is that if you do all the right things consistently you’ll be likely to build wealth. How fast you build it depends on how much you are able to earn, how little you are able to spend, and how you manage your investments.

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