How to Become Rich

how to become richIf you were to conduct an informal survey asking random people the question “how does one become rich?” I’ll bet the majority of the answers (aside from becoming a famous movie star or professional athlete) would be something along the lines of “get a super high paying job.” The prevailing mantra in society seems to be the higher the job compensation then the richer you should be. That, of course, is only somewhat correct and if I were grading the survey responses, I’d only give partial credit for those answers.

I don’t have any actual surveys or studies at my disposal to back this assertion up. However, based on my observation, people seem to focus on salary as a means to become rich. You see headlines all the time like “7 six-figure jobs that anyone can do” or “5 sure fire tips to get a huge raise.”

While maximizing your salary is generally a wise pursuit, you most likely won’t become rich off salary alone. Exceptions might be a top notch surgeon or corporate executive with cushy stock options, but becoming rich isn’t exclusive to just those professions. So, if earning a fancy salary isn’t the way to become rich, then what is?

How to Become Rich: The Way the Uber Wealthy Do It

The way the ultra wealthy become rich is through capital gains (when assets are disposed at a higher price than the original purchase price). How do they achieve capital gains? The answer is: through their investments. It’s those investments where the real wealth is accumulated and essentially how people become rich. Now, those with higher salaries might be afforded the opportunity to make more and larger investments (provided they aren’t spending most of their salary elsewhere). However, anyone can invest even if their wages aren’t excessive. Start small and work your way up.

Here’s an interesting fact:

“According to the IRS, which recently released 2009 data from the 400 richest individual income tax returns, the real runaway growth in wealth has come from capital gains. In the last years of the bubble, the “Fortunate 400” made nearly half their income from capital gains (a.k.a.: profit from the rising value of an investment, such as stocks or property) and less than 10% of their income from old-fashioned wages.“¹

Using Cap Gains to Become Rich

The odds are against you catapulting into the top of the world’s wealthy elite, but that doesn’t mean you can’t use some of the same methods they employ. Below are a few of the most common investment strategies that are used to become rich.

Real Estate: Real estate, both residential and commercial, are a popular means to become rich. Many of the wealthiest people in the world are real estate moguls. Some ways to become rich through real estate, such as real estate development, require extensive industry knowledge and know how. On the other hand, one of the more common and accessible methods to become rich through real estate includes purchasing investment properties for positive cash flow and then selling once certain appreciation targets are reached.

Market Investments: Investing in stocks and bonds with an intermediate to long term holding strategy can provide significant capital gains and help you to become rich. Many of the super wealthy have investment options not available to everyone else (such as hedge funds). There are still plenty of other alternatives though such as individual stocks or bonds as well as mutual funds. The good thing about this investment choice is that it requires the least up front capital. You can start investing with just a few hundred dollars.

Business Ownership: If you’re ever planning to hit a home run and become rich in a big time way then this likely is your best bet particularly if your business is a start-up bringing a valuable/innovative product or service to the market. That’s not to say you can’t become rich running a plumbing or gardening business. Think Mark Zuckerberg with Facebook or Mark Cuban with Audionet/Broadcast.com though. To achieve success via this approach is extremely challenging, but the returns can be exponential. Even if you don’t end up with billions like Zuckerberg or Cuban, you can still do quite well for yourself. For example, let’s say you start an online business and through diligence, smart work, and good fortune you turn your endeavor into a success. Whether you end up cashing out via an IPO or by simply being bought out, you could end up making a tidy sum.

Have you always considered salary the key in order to become rich? How do you view wealth creation now that you know most of the country’s richest achieve their fortunes via capital gains? How do you plan to follow suit?

¹ Per How the Richest 400 People in America Got So Rich
Image courtesy of digitalmoneyworld at Flickr.

 

32 Responses to How to Become Rich

  1. Joshua @ CNAFinance.com September 3, 2013 at 7:05 am #

    I don’t think I need to be ubber rich. I’d just like to make enough to maintain a household. Being rich sure would be fun. I just started investing…maybe I’ll get there one day! Thanks for the great read!
    Joshua @ CNAFinance.com recently posted…How To Make A Budget Spreadsheet That Makes Budgeting Fun!My Profile

    • Mr. Utopia September 3, 2013 at 6:29 pm #

      I don’t want to be uber rich either – I imagine it comes with too many headaches. However, that doesn’t mean we can’t leverage some of their wealth building strategies!

  2. Romona@Monasez September 3, 2013 at 10:07 am #

    It’s my goal to be wealthy. I”ve been searching for months for my million dollar business idea. The hardest part is finding something that meets a need that’s not already being met. I’m at the point where I think imma just going to take a chance on an idea and wing it. As far as investing, I really want to get into stocks, bonds n mutual funds.I just don’t know where to start at this point.
    Romona@Monasez recently posted…I plan to marry in Vegas: Here’s WhyMy Profile

    • Mr. Utopia September 3, 2013 at 6:43 pm #

      It definitely is tough to find a winning idea and then also be able to implement it. If it were easy, then everyone would be doing it! Also, it’s never too early to start investing in the market. If you are stuck on where to start, I’d suggest trying index funds since they mirror their target market index and are generally fairly inexpensive.

  3. retirebyforty September 3, 2013 at 10:23 am #

    My idea of wealth changed a lot over time. When I was younger, it was about money. Now, it’s about having the time. I’m not willing to work 80 hours/week and be stressed out all the time to get rich anymore. Early investment is the key to becoming rich. If you invest consistently and have time on your side, you’ll be rich someday.
    retirebyforty recently posted…August 2013 Goals and Financial UpdateMy Profile

    • Mr. Utopia September 3, 2013 at 6:46 pm #

      Those are words of wisdom, RB40. I honestly couldn’t agree any more.

  4. Andrew@LivingRichCheaply September 3, 2013 at 10:23 am #

    I think that having a high income is how the majority of people become wealthy (not including windfalls, etc.) Sure you can increase your wealth through investment in real estate and the stock market, but it is hard to do so without having capital to invest in it…
    Andrew@LivingRichCheaply recently posted…When Being Cheap and Lazy is BetterMy Profile

    • Mr. Utopia September 3, 2013 at 7:06 pm #

      That’s true, you’ve got to “have money to make money” and a nice salary goes a long way in accomplishing that objective. The premise, though, is to dispel the notion that one can become rich merely on a lucrative salary alone.

      • Jeff September 10, 2013 at 4:14 pm #

        I agree in that I’ve yet to meet anyone who got wealthy off of their salary alone, there was always some investments involved. Financial management counts for much as well, I know too many coworkers and colleagues whom I know to make more than I do yet often seem to be barely breaking even whether due to kids or lifestyle inflation.

  5. moneystepper.com September 3, 2013 at 10:26 am #

    Stocks and real-estate seem the most sensible methods of wealth creation, but both are best approached with a “get rich slowly” attitude.

    Owing a business can be financially and personally more rewarding, but it comes with significantly increased risks, even if your idea is a great one!

    I personally view the salary as the way to become well off, and additional passive income as the way of getting rich!
    moneystepper.com recently posted…Repeat offenders – criminal vs financialMy Profile

    • Mr. Utopia September 3, 2013 at 7:57 pm #

      The risk/reward premium for owning your own business is rather significant. I think the majority of the population isn’t willing to take such a risk particularly with start-ups…me included.

  6. Abi @ Debt Free in Dubai September 3, 2013 at 1:04 pm #

    I always knew I was never going to get rich with the pay from my 9-5 job. My daddy retired when he was 30 and started his own business – buying and selling land and property. By the time he was 35, he was a millionaire. I always wanted to be like him so much but I’m over 30 now and still slugging away at my 9-5 so clearly, that’s not going to happen. Lol. Anyway, all this to say I learnt from him I need to do more than a regular job to be become rich so I’m working my way towards it now.

    I’m not trying to be Warren Buffet. Just wanna have enough to pay all my bills and still enjoy a good quality of life and no longer be a part of the hades that’s the corporate world. Hopefully, I can make it happen before I hit 40!
    Abi @ Debt Free in Dubai recently posted…Book Review: The Total Money MakeoverMy Profile

    • Mr. Utopia September 3, 2013 at 8:00 pm #

      There shouldn’t be a race to accomplish the same things by the same age as your father. Is there any way you can leverage/copy your father’s success by following a similar pathway with the knowledge he gained?

  7. Clarisse @ Make Money Your Way September 3, 2013 at 7:04 pm #

    I want to become rich but really don’t know how to do that! hahah! I’m not really good when it comes to budgeting and that’s what I’m working it now. For me I think investing is just one good option to help you to become a wealthy person.
    Clarisse @ Make Money Your Way recently posted…Investing in Commercial PropertyMy Profile

    • Mr. Utopia September 3, 2013 at 8:02 pm #

      Baby steps, Clarisse! I think the first step is educating yourself how others have become rich and then doing your best to emulate in ways that make sense for your situation.

  8. Kyle | Rather-Be-Shopping.com September 4, 2013 at 10:57 am #

    Interesting post and some great points. In my experience, real wealth can only be maintained by living frugally. Enjoying life but not overindulging and pissing away all your hard work. Keep reinvesting!
    Kyle | Rather-Be-Shopping.com recently posted…Outlet Shopping with the Family, Was It Worth It?My Profile

    • Mr. Utopia September 7, 2013 at 5:33 pm #

      I agree about living within your means, Kyle. It’s definitely a vital part of the formula to become rich.

  9. DC @ Young Adult Money September 4, 2013 at 2:49 pm #

    It’s interesting that most people would say get a super high paying job, but you probably are right. I think I’ve been in the PF blogosphere too long so I immediately think “accumulate income-producing assets.”
    DC @ Young Adult Money recently posted…The Truth About Being a One Income FamilyMy Profile

    • Mr. Utopia September 7, 2013 at 5:35 pm #

      That evolution of thought will serve you well in the long term, DC!

  10. Jon @ MoneySmartGuides September 4, 2013 at 5:51 pm #

    I see my income as the main tool to becoming rich, but I still need to live below my means so that I can go an invest that income to produce the dividends and capitals which will allow my investments to compound and grow. Without the initial income, it’s hard to invest the money to even earn capital gains.
    Jon @ MoneySmartGuides recently posted…Retiring Like It’s 1989My Profile

    • Mr. Utopia September 7, 2013 at 5:38 pm #

      I totally agree, Jon. You need the initial income. After all, you “need money to make money.”

  11. SuburbanFInance September 4, 2013 at 7:39 pm #

    I would love to become rich! There’s a lot that goes into it.

    • Mr. Utopia September 7, 2013 at 5:39 pm #

      Indeed there is a lot that goes into it. You’ve got be to smart, work hard, and catch a few breaks along the way.

  12. Pauline September 5, 2013 at 12:14 am #

    You can become rich with a super high savings rate and many years in front of you. You would still have to make smart choices, but if you are not cut to be a business owner, a few index funds and dividend shares can help you build wealth.
    Pauline recently posted…Financial goals update, July-August 2013My Profile

    • Mr. Utopia September 7, 2013 at 5:41 pm #

      That’s absolutely true – there’s the longer term save and invest approach and a possibly quicker, but also riskier, approach of running your own business. Everyone who does become rich has to figure out what’s best for them.

  13. Financial Samurai September 8, 2013 at 9:58 pm #

    It’s interesting you put out those 3 things to be rich as I do all three now, with the business side being the most recent.

    I think we’re just rich living in a developed country!

    Life is good.
    Financial Samurai recently posted…Real Estate Investment Mistakes To AvoidMy Profile

  14. krantcents November 21, 2013 at 5:26 pm #

    I always saved and invested! I deferred income when I invested in income property in favor of growth. I made a great deal from capital gains that way.
    krantcents recently posted…Why Are Some People Successful and Others Fail?My Profile

  15. Abi Scrooge April 18, 2014 at 8:34 am #

    I realized two years ago I was never going to become rich on my salary and side hustles alone. I have since diversified my money and my ultimate goal is to quit and start my own business this year.

    • Mr. Utopia April 18, 2014 at 9:48 am #

      Good for you and good luck! It’ll be hard work, but the returns can be exponential if you work hard and play your cards right.

  16. Ian Zafra March 30, 2015 at 12:19 am #

    Becoming rich is really serious thing to do, you have to set your goals and the plan to do to achieve that. These are great ways to start and build the path of becoming successful and rich.

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