How to build wealth from scratch in 3 practical steps

​An easy path to wealth is comprised of just three simple steps. The first step is setting up automated contributions to an investment account – even if you start out small, with just $10 a week. The second step is using a budget to keep track of your spending and make sure that your money is going where you want it to and accomplishing what you want it to. Step three is becoming a well-educated investor through the use of books, online courses, and financial resources that brokers provide for free. Just following these three simple steps can help get you from $0 to wealthy.

There is an easy path to wealth – so simple that virtually anyone can follow it, even if you’re starting from scratch, with no savings, no investments, no assets, and no six-figure income. 

Anyone can go from $0 to financially independent - even wealthy - by just following a few simple steps.

Sure, you might fall into a pot of gold someday – make an investment somewhere along the way that turns out to be “the next Nvidia” and makes you a millionaire. But there’s a much easier road to wealth, and one that has a much greater chance of success than the odds on picking the next Nvidia or Apple.

Your journey to wealth starts right now, with the 3-step plan I’m going to give you right here. Let’s go.

Step one – Set up automated contributions to an investment account.

This is the first step because it’s the most important step. Investing is what will ultimately make you wealthy. Therefore, step one on the road to riches is starting an investment account, where you can invest in financial assets such as stocks or commodities. Wealth is built through the accumulation of assets – that is, things that increase in value over time and/or generate income (e.g., stock dividends or interest earned on bonds). I can already hear people protesting, “But I don’t have money to invest.” Well, that’s exactly the problem we’re going to fix here.

Even if you’re living, like most people, “paycheck-to-paycheck”, you can still get going on the road to wealth. Set up an automatic funds transfer from your checking account to an investment account - even as little as $10 a week. Odds are, you’ll never even miss it. And at the end of one year, you’ll have an investment account with $520 in it.

You may be thinking, “$520 – that’s not much to invest with.” Well, it’s $520 better than $0. And if you’d started doing this five years ago, you’d already have more than $2,500 working for you. Way too many people never start at all, just because they don;’t think it is worth it to start small.

Step two – Craft a budget to make your money go where you want it to and achieve your financial goals.

It’s critical to your financial success to have a firm handle on your money – to know where every dollar is coming in from and where it’s going out to. People who budget their money almost always end up with more money and greater financial security than people who don’t.

I recommend creating a budget as follows:

- First, just keep track of everything you spend for a month or two. The first step in budgeting is finding out where your money is going. Nearly everyone who’s ever done this has been significantly surprised by seeing how high one or more of their monthly expenditures is. You’re sure to find some areas where just making a few minor cutbacks in your spending will free up more money for truly valuable things such as saving and investing. For example, I know several people who chose to abandon the luxury indulgence of Starbucks after seeing that fancy cup of coffee was taking $200-$300 out of their pocket every month.

- After you’ve got a one- or two-month record of what your actual expenses are, you can craft a budget to start making your money go where you really want it to and accomplish the things you want – rather than just kind of aimlessly sailing out the door every month. 

- You can simplify budgeting by using a budgeting app such as EveryDollar or Lunch Money. One budgeting tool that many people find helpful is one that enables you to keep track of (or easily cancel!) those monthly subscription services we’ve all signed up for.

Saving and investing

Key parts of your budget should be automatically dedicating money every week, or every month, to saving and investing. We’ve already talked about setting up automatic contributions to an investment account. Do the same for savings accounts. The purpose of investing accounts is to make you money. The purpose of savings accounts is to create a solid foundation of financial security.

Financial advisors commonly recommend having at least six months’ worth of expenses in a savings account, in order to be protected against periods of unemployment or large, unexpected expenses (e.g., major car repair bills or medical expenses). Yes, it can take quite a while to accumulate that much money in a savings account. But once you’ve done it, you’ll sleep much more peacefully at night.

While you're building up that emergency account, an access to available credit can provide an additional layer of financial flexibility if you have unexpected expenses. However, it is important to use credit responsibly and avoid treating it as a substitute for savings. If you do use a credit card, try to reserve it for genuine emergencies and pay off the balance as quickly as possible. The ultimate goal is to build enough cash reserves to handle unforeseen expenses without having to rely on borrowing.

You may want to create more than one savings account. In addition to that emergency funds account, you might want to set up a separate account to save up for next year’s vacation, or for this year’s Christmas presents.

I stress the importance of automating regular contributions to savings and investment accounts. If these tasks are automated, then you don’t even have to think about them. However, if you rely solely on good intentions, but not actions, it's easy for that money to be spent elsewhere before you have a chance to save or invest it. As your income grows, consider increasing your contributions as well, allowing your savings and investments to grow alongside your earnings.

Step three – Become well-educated on the financial world.

One of the best investments you can make while you’re building up your investment account is to invest your time in getting a financial education. In addition to the thousands of books that have been written on personal finance and investing, there are plenty of online courses and other financial resources available. Most brokerage firms offer plenty of free instruction on investing and managing your money. Take advantage of those free resources.

With some time and a little effort, you can learn everything you need to know to put your investment account to good use by becoming a successful investor – technical analysis, how to evaluate stocks, the various ways to invest in real estate. You can become a self-taught expert on investing in stocks, commodities, forex, and other assets.

Regularly reward yourself

Your journey to wealth shouldn’t just be one of stern self-discipline and financial responsibility. Periodically reward yourself for having exercised that self-discipline and for having attained financial goals. Finally saved up your first $1,000 in your emergency fund account? – Treat yourself to a nice dinner out, or give yourself an extra day off and a long weekend. You may not be a millionaire just yet, but you can recognize that you’re “getting there”, making progress, taking the right steps on the road to riches.

Celebrating your accomplishments will also help to reinforce the behaviors that make them possible.

An easy path to wealth – summary

So, there you have it – a simple, very “do-able” roadmap to becoming wealthy and financially independent.

1) Set up automated contributions to investing and savings accounts

2) Craft a budget to make your money go where you want it to

3) Give yourself a strong financial education

Whether you’re starting from scratch, or just looking to get more financially savvy, diligently following these simple steps can help you secure the financial future you want. Don’t wait any longer - Start out on the easy path to wealth today.