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Need to build wealth, but not living on Bill Gates income? Try out these great common sense tips which can increase your money whether you have a lot or not!

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How to Grow Rich on a Budget

To start building your fortune you don’t have to work three jobs or create a huge company with thousands of employees—though that works for some people! The key to building wealth is to focus on slowly increasing your net worth. Net worth is the value of everything you own minus the value of everything you owe.

Here’s an example: Let’s say you have a car worth $25,000, a bank account with $10,000, and a few household possessions that really aren’t worth much. That means your total assets are worth approximately $35,000. But that’s not your net worth because you also have to subtract out your debts. If your only liability is a car note with a $20,000 balance, then your net worth is $35,000 (your assets) minus $20,000 (your debt), or $15,000.

The best way to keep track of your wealth is to monitor your net worth on a regular basis. The idea is to increase your assets—like bank accounts, retirement accounts, real estate, precious metals, businesses, and intellectual property—and to reduce your debts.

In my book that’s coming out on December 21^st, Money Girl’s Smart Moves to Grow Rich, I take you step-by-step through the process of creating a Personal Financial Statement so you can easily stay on top of your net worth. The book is packed with quick tips and one of them is a formula to determine your target net worth for your age.

Grow Rich Strategy #1: Spend Discretionary Income Wisely

The first strategy to grow rich is to spend your discretionary income wisely. Many people have great jobs and plenty of income but have zero net worth. Having good cash flow is fantastic! But guess what? It doesn’t increase your wealth if you spend it carelessly on things that don’t appreciate in value like clothes, vacations, and nights out on the town. Stars like MC Hammer and Toni Braxton come to mind as extreme examples of people who earned tons of money but didn’t end up with anything to show for it and went bankrupt. Hammer burned through something like twenty million dollars and Toni just couldn’t make ends meet on $47,000 a month!

In order to turn your income into a fortune you have to use some of it to increase your net worth by doing what I previously mentioned—increasing your assets, reducing your liabilities, or by doing both. If you’re not sure whether it’s better to use your discretionary money to make investments or to pay down your debt, be sure to read what I wrote in a previous Money Girl article.

Grow Rich Strategy #2: Start Investing Earlier Rather Than Later

They say the early bird gets the worm. That proverb is certainly true when it comes to building a fortune. Putting time on your side can explode your wealth due to one of the greatest gifts math has ever given us—compounding interest.

Here’s an example that says it all: Let’s say your goal is to retire at 65 with a cool one million dollars. If you begin early, like when you’re 25 years old, you’d only need to save a little over $400 per month, assuming an average annual return of 7%. Paying $400 per month over 40 years comes to a total investment of $192,000 ($400 x 12 payments x 40 years).

But if you wait until you’re 35 to start investing, you’ll need to cough up almost $900 per month, also assuming a 7% average annual return. You’d have to invest a total of $324,000 ($900 x 12 payments x 30 years) to accumulate a million dollars in 30 years. And if you’re a financial late-bloomer and don’t get started until you’re 45, you’ll have to shell out over $2,000 per month, assuming the same 7% return. My friends, procrastination is expensive! You’ll end up investing $480,000 ($2,000 x 12 payments x 20 years) to become a millionaire in 20 years.

Comparing these scenarios makes it clear, right? I don’t know anyone who’d rather invest $480,000 instead of $192,000 to reach their retirement goal. There’s simply no better way to accumulate a healthy nest egg than to start early. Even if you put aside $200 per month for 30 years at an average 7% return, you’d amass over a quarter of a million dollars.

Time is a critical factor that affects your ability to build wealth. So stop using excuses like, I don’t have enough to invest, the market is too high, or the market is too low. Remember that waiting to invest is hazardous to your fortune and future financial security.

Grow Rich Strategy #3: Protect Your Fortune

Once you begin to accumulate wealth, you need to keep it safe. Protect your fortune by having enough of the right kinds of insurance, such as health, life, disability, long term care, and an umbrella policy. Review your insurance needs once a year with an experienced insurance agent.

Get more information at Money Girl!