The thought of getting rich can hit us in the extreme. We might think it’s super easy or really hard. In fact, building wealth is often more nuanced and cannot be categorized as “easy” or “difficult.” If you don’t currently have a ton of wealth, it’s definitely a mystery. If you don’t inherit millions of dollars, what do you really need to do to get rich? What are some little-known steps?
In a video posted on The Financial Diet, a YouTube channel she co-founded, Chelsea Fagan discusses eight things about becoming rich that you may not have heard of because they’re just not discussed openly.
Guilty of heading to Starbucks for a decadent latte every week? Regret that random $5 bracelet you bought at Marshalls? Of course, a little bit of spending can add up. But this is the big thing you need to focus on when building wealth.
“Just because you bought avocado toast once doesn’t stop you from buying a home,” Fagan said, adding that you should think about your overall major lifestyle expenses rather than focusing on the little things.
Next article: 3 signs you’re financially “successful,” according to financial influencer Genesis Hinckley
Recommended for You: 6 Clever Genius Moves All Rich People Make with Their Money
As you get older, you may start to see your peers pulling ahead of you financially (or so it seems). People get promoted in their careers, buy properties, start families, travel more lavishly, and more. You may start to feel some unspoken pressures. Why aren’t you on the same level? Stop right there. If you continue to hold these types of thoughts, you run the risk of succumbing to lifestyle inflation.
Lifestyle inflation, also known as lifestyle creep, is an increase in spending as your income rises, often resulting in an increase in your standard of living that hurts your financial goals and puts you into a position of accumulating debt. The main question here is that you may be making more money, but is that enough money to justify upgrading so much?
“Many Americans are struggling to make ends meet,” Fagan said.
“A key aspect of saving money is automating it so you don’t have to think about it,” Fagan said. To automate effectively, make as many of the costs in your life as “fixed costs” — meaning they stay the same even if you make more money over time (think mortgage or rent payments, car insurance premiums, or childcare expenses).
Automated savings is more than just a banking technology initiative. It’s also a way to turn savings into a fixed cost, but as your income increases, so do your costs.
Although self-made millionaires are becoming more common in an age where entrepreneurship is also becoming more common, the fact is that most millionaires are heirs. Their parents created wealth for them, so they have more opportunities to become richer.
“It’s easier to make money when you have money,” Fagan said. “Wealth creates and perpetuates wealth.”
But here’s the good news: The wealth you create creates wealth too. For example, the more you save, the more you can invest, and the more you invest, the more you benefit from compound interest.
“Once you reach a certain level of wealth, it’s easier to stay wealthy,” Fagan said.
This ties into the point made earlier that small purchases won’t hurt your finances as much as larger expenditures. Instead of focusing on cutting expenses and then cutting them further, focus on ways to increase your revenue. This will have a considerable impact.
“You can cut as much as you want,” Fagan said. “But at the end of the day, unless you’re making enough money that you can actually save a lot of money by cutting back on expenses, it’s more important to focus on making more money.”
In the current period of high inflation, this is severely affected. Making a lot of sacrifices to save $50 a month is not nearly as effective as sacrificing time to make $1,000 a month with a side hustle.
Another scary fact: Not everyone makes the same money, even if they work the same hours and put in the same amount of effort. Some industries will give you an annual bonus that you can use to invest without having to dip into your savings.
Fagan highlighted the tech industry as well as finance and banking as being favorable for bonuses. Corporate jobs can also provide you with one-time compensation in the form of bonuses or raises. You may also receive stock compensation from your employer. So if you’re just starting your career or planning to change careers, consider positions in industries where you can expect bonuses or stock options.
You have to take advantage of compound interest – which means developing a long-term investing strategy and weathering tough times in the market.
“You need to make sure your money is invested during the most profitable days, which are almost completely unpredictable,” Fagan said. “We also have to remember that the stock market has a history of rebounding from turbulent times.”
Homeownership has long been considered a pillar of the American dream. But it’s nothing like it was in the 1950s. It becomes more financially complex and expensive. Buying a home may feel like the “to do” when you reach a certain age or start a family, but it can be a wealth-blocking mistake.
“Despite the age-old advice from baby boomers that renting is just a waste of your money, or the belief that owning a home is essential to long-term wealth building, not only is that not always true, in some cases it can work against you,” Fagan said.
Renting may be a smarter, healthier financial choice. In some cases (and locations), renting can become more affordable than owning a home over time.
More from GOBankingRates
This article originally appeared on GOBankingRates.com: 8 Things You Don’t Know About Getting Rich, According to Chelsea Fagan
