Everyone wants to find that magical formula that will completely transform their finances. The problem is that going from poor to rich isn’t so easily done. You have to know the right strategies that will help you consistently build wealth over time. Fortunately, accumulating wealth in five years is achievable, according to experts.
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GOBankingRates spoke with Stoy Hall, CFP, founder and CEO of Black Mammoth, and Rhett Stubbendeck, CPCU, founder and CEO of Leverage Planning, to discuss the ways people can significantly change their financial situation within a short period of time. Read below for their advice.
Develop a High-Income Skill
“Learning a valuable skill can drastically increase your earning potential,” Stubbendeck said. “I’ve seen clients master skills like coding or digital marketing and significantly boost their incomes.”
Stubbendeck highlighted a client of his who did just that. “For example, one client learned digital marketing and landed a high-paying job in just six months,” he said.
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Live Below Your Means
According to Stubbendeck, living below your means is crucial. “Track your expenses and cut unnecessary spending,” he said.
This is something Stubbendeck has personal experience with. “When I started my career, I lived very frugally, directing most of my income towards savings and investments,” he noted. “Avoid lifestyle inflation and focus on building a strong financial foundation.”
Invest Aggressively
Investing is also crucial to building wealth. “Start investing as much as possible in stocks, real estate or other appreciating assets,” Stubbendeck said.
“Compound interest can work wonders over time,” he added. “I began investing a significant portion of my income in index funds and rental properties, which appreciated significantly over five years.”
Focus On Becoming Wealthy Over Being Rich
“I am not a believer in anyone wanting to become ‘rich,’” Hall said. “Having money does not bring happiness.”
Instead, he advised focusing on becoming wealthy. “Being truly wealthy is living in happiness and joyfully, while giving back to others and living life on your terms,” he explained. “Yes this takes money, but money is just a tool.”
Figure Out Your Purpose
“Aligning who you are with what you want in life will allow you to focus your energy in the right direction,” Hall said. “Those that are deemed to be ‘rich’ are usually focused on one thing, and that is money.”
According to Hall, figuring out your purpose is a step on the journey to building wealth. “By focusing on the direction, the decisions you make moving forward will all be to bring you a return, thus building your wealth,” he said.
Hall said that he found his purpose and it allows him to live his life how he chooses. “For example, my purpose is to guide others on their wealth journey,” Hall continued. “By doing so, it allows me to live my life how I want, with my family, traveling and letting my kiddos live their best lives.”
Set Goals
“Now that we know our purpose, you need to set a legitimate goal,” Hall said. “If it’s money, then your goal may be $1 million or $10 million. If it’s true wealth, it may be going on vacation each year to Hawaii or starting your own business.”
Building wealth requires having goals and sticking to them. “Having an aligned purpose and goal, again makes your decision-making have an absolute purpose,” Hall said.
Work On Continually Increasing Your Income
“In order to get ahead, you must have more income than expenses,” Hall said. “Easier said than done. If you are working in corporate work or own your own business, you must work to increase your income. ‘Rich’ people have more income than expenses and drive that income into investments.”
There are many ways to increase income, and it could look different for everyone. “For example, if you work in corporate, the best way to increase your income is to overachieve at your current position and make sure you have the ability to move up,” Hall explained. “If you do not have a ladder to climb, then you must change companies and/or start a side gig.”
Business owners, Hall said, also need to focus on income growth. “As a business owner, you must focus on growing your business to operate without you in it,” Hall explained. “Us business owners are notorious for having our hands too deep into the weeds when we should be high-level thinking for growth.”
Invest In What You Believe In
To become one of the ultra-wealthy, according to Hall, you must invest often and in what you believe in — including in your health and passions. “I know you are asking how do I invest with minimal money and what do I invest in,” he said. “How? Investments do not just mean stocks and bonds — investments are in your physical health, mental health, passion projects and other’s success.”
These investments can look different for everyone, Hall said. “These may be companies, sports teams, vineyards or your own business as well,” he explained.
Investments like these achieve specific goals, according to Hall. “These types of investments do two things: they make you feel good (happy) and create the best ROI around,” he explained. “By improving your ROI and your ‘feel good,’ you will stay energized to the wealth journey you are on.”
Hall then explained what he’s learned in his profession and how he leverages other things to make money and save time. “Here is something I have learned from studying and working for wealthy people: ‘leverage people and leverage banks,’ meaning use someone else’s energy/skills and use the banks money to make you money,” he said. “Some of you may call this debt and employees, however you need to think like the ‘rich’ do, and it’s human capital and money leverage. For example, if I can pay you $10,000 to do a project for me that saves me either X amount of time or produces me $20,000, I have leveraged you to make money.
“Same goes for banks,” Hall added. “Say I have a home mortgage with equity in my home. I can get a HELOC and take that money to invest in a company or a project that brings me a ROI of say 20% while only costing me 7% to leverage the banks’ money to make me money.”
Tighten Your Circle
“This step will not be popular,” Hall said. “However, it may be one of the most crucial steps.”
According to Hall, it’s important to ensure you’re surrounding yourself with the right people. “Tighten your circle by letting go of toxic people and anyone that is not aiding in driving your purpose forward towards your goals,” he said. “Yes, this includes family, friends that aren’t aligned. That wasted energy or those that will pull you down, especially coming from your background, will severely hinder your ability to become ‘rich.’”
Hall said this also means to align yourself with those who lift you up. “Others in your profession, maybe podcasts, or those you want to emulate and learn from. Today’s day and age allows you to learn remotely, so no matter where you are or what situation you have, you have access to the amazing tools and minds of those that are ‘wealthy.’”
Overall, these steps are not guarantees. “These steps won’t guarantee you will become ‘rich,’ because that also takes luck and perseverance, which can be out of your control,” Hall said.
However, it’s important to keep at it, according to Hall. “Stick to these steps, and money will follow.”
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This article originally appeared on GOBankingRates.com: I’m a Financial Planning Expert: Take These 9 Steps To Go From Poor to Rich in 5 Years
