How to Build Wealth From Scratch

When you're down on your luck, living paycheck to paycheck, or simply living like the average college student, it can be difficult to imagine a world in which 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?"

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 startsaving, 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're starting with nothing or, even worse,with debt.

Step No. 1: Keep your expenses low as long as possibleOne of the biggest challenges you'll 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're spending everything you bring home, you'll 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 possiblefor 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 No. 2: Avoid new debts and actively address the ones you already haveAnother 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'll 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 No. 3: Building multiple streams of incomeMost 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 newsharing economybuilt around technology has made it easier for all of us to become freelancers. 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?

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

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 No. 4: You have to invest the differenceOnce you cut your expenses and embark on a debt payoff plan you can live with, it's time to take the next step: investing. And according to the experts, this might be the most important step of all. We've written dozens of articles onhow to start investingandInvesting 101if you are looking for a place to get started, but the most important thing is that you do get started.

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

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 outour many articles on bestinvestingpractices and strategies.

Just remember, there is noone right wayto start investing. AsTodd Tresidder at put it:

The bottom lineInheriting 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 wealth can take a million different twists and turns, but the end result will always be better than it would be had you not tried in the first place.

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