How to build wealth from scratch

When you are living paycheck to paycheck, down on your luck, or living a student lifestyle, it can be difficult to imagine a world where you are suddenly building wealth. Take this comment from Kendra on one of our Ask the Readers posts, “What do you do when you’re broke?”

“I feel like like Caleb a bit — in that most of these blogs don’t cover how to get started. I mean for a student, for someone who’s been born into poverty, how does one get started? I’m a student. I have NO income and my graduate program won’t allow me to get a job. I only have ‘living’ money from loans — and quite frankly, when I need more, I just get another school loan. (I have full faith that I’ll be able to pay debt off quickly and make great pay at a job sometime in June/July).

“But as someone who doesn’t know much about money other than what’s on these blogs how do I START making money work? What can I do with $20? $50? You know what I mean?”

It’s easy to understand Kendra’s perspective. We have been taught our whole lives that it takes money to make money — that to get ahead, you need a steady stream of income and a streak of luck.

And much of that is true. To start saving, you do need an income first and foremost. And if you are in debt or living on your own, it can be much harder to see the light at the end of the tunnel.

No matter what, it is much easier to start with a clean slate than it is to dig yourself out from a hole.

But you have to start somewhere, which is what nearly everyone who is wealthy today did at one point in their lives.

Here are a few steps that can put you on the path toward building wealth from scratch — even when you are starting with nothing, or worse, with debt.

Step #1: Keep Your Expenses Low as Long as Possible

One of the biggest challenges you will encounter as you try to build wealth is keeping your income in line with your expenses. To get ahead, you need expendable income; and when you are spending up to the brim of what you bring home, you will always end up with nothing to save.

The solution to this conundrum is simple, yet may be painful for many: You need to keep your expenses as low as possible for as long as possible. For some people, that could mean living a few extra years at home with mom and dad while you pay off student loans. For others, it could mean getting an apartment with three friends instead of scoring your own place. Go without cable television for a while, ditch your smartphone, eat cheap and easy meals, and ride a bike instead of using public transportation as often as you can.

Remember, this move might only need to be temporary as you position yourself in a better financial place. But the bottom line remains the same: Saving money is immeasurably easier when your expenses are as low as they can go. So start cutting.

Step #2: Avoid New Debts and Actively Address the Ones You Already Have

Another demon that could be killing your wealth-building dreams? Good old-fashioned, debt. Unfortunately, as many of us have found over the years, getting into debt is a piece of cake. Combine a few credit cards with a few bad months and you can easily be staring down years of minimum payments in no time. Of course, the solution is, and always has been, to stay out of debt in the first place.

But for a lot of people, the solution isn’t quite that easy. Today’s young people have something their parents didn’t have — a huge mountain of student loan debt. According to the Project on Student Loan debt, the graduating class of 2013 left school with an average $28,400 in debt per borrower. And as we all know, student loan debt cannot be discharged in bankruptcy, nor can it be bargained down. In most cases, the only way to get out from under it is the old-fashioned way — by paying it off.

Regardless, whether it’s student loans to pay off or credit card debt to avoid, you will be much better off if you avoid new debts and destroy the ones you already have. To get out of debt, you can try the snowball method, the avalanche method, or the tsunami method. Do whatever it takes to get the job done.

But, doesn’t that take money?

Step #3: Building Multiple Streams of Income

Most of us think of income in terms of our regular 9-to-5 jobs or part-time work, but that perception is slowly changing. A new sharing economy built around technology has managed to capture our freelance aspirations. You no longer have to get a second job to start bringing in more income; you just need to find a way to earn more money than you are earning now. But, how do you do that?

Related >> The sharing economy and taxes

According to Jim Wang of and, it’s about finding something — anything —someone will pay you for and building a business around it.

“Building wealth is about creating value and then recapturing that value in financial compensation. Whether it’s providing services, knowledge, or experience, if you aren’t creating value then there’s nothing for you to build wealth with,” Wang said when asked about building wealth from scratch. “This value can also take many forms, it can be actual monetary value or it could be providing entertainment or saving time or reducing headaches, etc; the more creative you are, the more opportunities you’ll see.”

If you have a talent or skill, find ways to monetize it. Search for a new side hustle on freelance sites like or Buy and resell items on Mow yards. Clean houses. Refinish furniture for resale. Tutor high school students. The options are only limited by your abilities and passion. Obviously, all side hustles don’t apply to everyone, but that doesn’t mean that everyone doesn’t have at least one skill they can capitalize on.

Step #4: You Have to Invest the Difference

Once you cut your expenses and embark on a debt pay-off plan you can live with, it is time to take the next step — investing. And according to the experts, this might just be the most important step of all. We’ve written dozens of articles on how to start investing and Investing 101 if you are looking for a place to get started, but the most important thing is that you do, in fact, get started.

Related >> How to start investing

If your work offers a company 401(k) and company match, that is an excellent place to start. Figure out how much of your income you can live without and let them deduct it from your paycheck automatically. It might make your paycheck a little bit smaller at first, but you will get used to it over time. And most importantly, you will be building wealth with no effort on your part.

Related >> Investing 101

If you don’t have a work-sponsored retirement plan, you have a little more work to do. Still, the resources are there if you look hard enough. Check out Vanguard for resources on opening your own retirement or brokerage accounts, or check out our many articles on best investing practices and strategies.

Just remember, there is no one right way to start investing. As Todd Tresidder at put it:

“The principles to building wealth are so simple everything you need to know can be stated in just one sentence — spend less than you make and invest the difference wisely. How you accomplish that objective is where things get interesting.”

The Bottom Line

Inheriting money is easy, but building it from scratch is a whole ‘nother story. But you have to start somewhere and, unfortunately, sometimes “somewhere” is at the bottom of the pack.

Just remember, the keys to building wealth are keeping expenses low, eschewing debt and as many financial obligations as possible, finding a way to earn more money, and investing all along. The path to get there can take a million different twists and turns, but the end result will always be better than if you had not tried in the first place.

What strategies are you using to build wealth from scratch? What are the biggest challenges you have overcome?

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