How to become rich at a young age?

How can you become rich at a young age?

Become rich young by avoiding costly lifestyle choices, tracking your expenses, and increasing your income. Aim to invest 40% of your gross income. Building wealth quickly is about investing a lot of money as fast as possible.

Imagine, having $100k in investments before you’re 30 years old. You have more money invested than some 40 year old adults.

Your 20’s are the perfect age to build wealth quickly.

Luckily for you, I’m going to show you how to become rich at a young age. Being young is one of the best benefits you have for building wealth. I’ll show you how to use your age to your advantage and avoid common, costly mistakes.

21-036 - How to become rich at a young age

This article may contain affiliate links which pays a commission and supports this blog. Thank you for your support!

How to become rich at a young age?

Become rich at a young age by making investing a priority. The more money you can invest, the easier it will be to build wealth. Therefore, don’t waste money, track your expenses, increase your income, and focus on investing.

Your goal is to take as much of your active income (e.g. 9-5 salary) and funnel it into investing. Starting your own side hustle can help you increase your income to further your investing.

As your investment accounts grow, the money invested starts to build wealth for you. The more money you invest, the more money the investments make.

Most young people blow their money on worthless stuff. You can’t make that same mistake if you want to become wealthy, because every dollar counts.

Click to Tweet! Please Share!Click To Tweet

Avoid costly lifestyle choices

Most people in their 20’s are wasting their money on partying and social gatherings. You’re most likely to get your first big job, giving you more money than you’ve ever known what to do with. Unfortunately, this excess of money gets wasted rather than being used as a wealth building tool.

Spending your money on partying, alcohol, and eating out are common lifestyle traps. I’ve met young individuals that have spent over $1,000 per month on alcohol once they’ve turned 21.

But you can’t build wealth if you’re constantly spending money.

Unfortunately, poor lifestyle choices are amplified once you get your first job. You’ve got a big kid salary and it’s going to your head. Most youngsters spend their salary on cars, large mortgage payments, and bad debt.

Just because you can afford a car payment doesn’t mean you should. Spending $300 per month on your car is $300 per month you can’t invest to build wealth.

You’re also likely to purchase more house than you should afford. Banks are willing to lend you more money than you need to borrow. Housing is going to be your biggest expense, so try to keep your mortgage payments as low as possible.

Avoid bad debt as much as possible. Good debt is in the form of using money to purchase assets like rental properties. Good debt pays you every month. However, bad debt takes away from your net worth every month.

Live like you are broke

Most young individuals graduated college and are ready to start living an upscale life. Unfortunately, lifestyle inflation is going to keep you poor. Try and live like a broke college student so you can save your money for investing.

The easiest way to build wealth is just pretend like you can’t afford anything. You have a full-time career which is paying a salary, but you’re keeping your expenses low.

Your career might be paying you $60k per year, but you only need $30k to live. That leaves you with $30,000 per year to invest and build wealth!

Unfortunately, most people succumb to lifestyle inflation. Lifestyle inflation is where you spend according to how much money you make. You get a 5% raise at work and spend an additional 5%.

People who build wealth take their pay raise and invest it. You’re making $60k per year, investing $30k, and then get a 5% raise. You’re now making $63k per year, investing $33k, and still living on $30k.

Budget or track expenses

You need a method for keeping track of your income. Budgeting or tracking your expenses are the two most common ways people manage their finances. Without tracking your money, it’s easy to spend without thinking about it.

Life is really expensive. It is easy to spend more than you make. Tracking your expenses allows you to make sure you’re still able to reach your financial goals without overspending.

Personally, I’m a fan of budgeting every single dollar. I know where I’m going to spend my money before I earn it. 

However, this system doesn’t work for everyone. It’s important that you find a way to manage your money in a way that works for you.

Increase your income

Income is your best tool for building wealth if you can keep expenses low. Someone who makes $100k should have an easier time building wealth than someone making $50k. You make more money so you should be able to invest more.

Unfortunately, lifestyle inflation kicks in for most people. The person making $100k per year spends $90k per year and the person making $50k spends $40k.

However, what if both individuals could live on $30k per year? The person making $100k could invest $70k per year while the person making $50k invests $20k.

At the end of the day, you can only cut your expenses so much. You need to focus on increasing your income, keeping expenses low, and investing the difference.

Side hustle

Side hustles are just another way to increase your income outside of your career. You could be making $5k per month from your 9-5, but also create a side hustle that pays $5k per month. You’ve doubled your income through side hustling, giving you more money to invest.

Side hustling is all about creating multiple streams of income. The more income streams, the more you can invest every month.

You’re also not relying on one source of income. Companies go through rough times and lay people off. Side hustles can ensure you’re not losing your entire income source if you’re let go.

Aim to invest 40% of your gross income

At a minimum, invest 15% of your gross income. However, you will build wealth quickly if you can aim to invest 40% of your income. Don’t feel bad if you can’t invest a lot. The goal is to start investing and work towards 40%.

Let’s assume you’re 20 years old and make $60k per year. From ages 20 to 30, investing 15% of your income would give you a portfolio value of $137k (8% ROI). Investing 40% would give you a portfolio value of $365k!

By 40, your 40% investor would have a $1.178 million portfolio. The 15% investor would only have $441k.

Take calculated risks

Following society’s rules rarely makes an individual rich. Even if you do follow the rules of society, you could be rich when you’re old. Therefore, you need to take calculated risks to become rich at a young age.

Remember, the goal is to take calculated risks, not risks. You want to have reasonable assurance that your risks are going to benefit your life, not make them worse.

What does that look like?

Investing in real estate if the numbers work out. You know how much your mortgage payment would be, estimated cost of repairs etc, and you have cash flow. You have done the math behind your rental property and consider it a good investment.

Don’t just buy a rental property because you think it’s a good idea. You’ve got to do the math behind the property.

Real estate investing is only one example. Your calculated risk could be something different, like quitting your job to pursue entrepreneurship.

Always be learning

Education doesn’t stop for rich people once they graduate college. Rich people are always self-learning to better their understanding of the way the world works. You need to be able to identify money making opportunities and how they work.

The more you learn, the more you earn.

The typical person leaves their education, gets a job, and then stops improving their life. Rich people are always trying to improve their life, but you need the knowledge to do so.

Click to Tweet! Please Share!Click To Tweet

Summary: How to become rich at a young age?

As you can see, it is possible to become rich at a young age. Focus on reducing your expenses, tracking your income, increasing your income, and investing. The more money you can invest, the easier it will be to build wealth at a young age.

You need to become a pro at earning, keeping, and multiplying money. It isn’t easy to do all three, but it’s important that you do whatever it takes.

Money is your greatest asset for building wealth. The more you make, the more you can invest.

John is the founder of TightFist Finance and an expert in the field of personal finance. John has studied personal finance for over 10 years and has used his knowledge to pay down debt, grow his investment portfolio, and launch a financial based business. He is committed to sharing content related to personal finance based on his experience in his career, investing, and path towards reaching financial independence.