First, a clarification: This is an article about the “how” that makes a person, couple, or family wealthy. That is, how do people go from having a little money to having a lot? This article is not about what being wealthy means to you or, in other words, how much money would make you wealthy. We’ll save that philosophical discussion for another article.

So how do you become wealthy?

If I asked 100 people what would make them rich, I would probably get 300 answers. Many think of “work hard,” “get an education,” “inherit,” or “invent” as end-all solutions to becoming wealthy. There are many ways to get rich, to be sure, but here are the most common ones we’ve found that produce the most satisfaction and financial freedom:

1. Own a profitable business. According to the authors of The Millionaire Next Door, not only do you have to own a business or a part of one, but:

The business must stay profitable for your entire career. This means your business must have staying power and not take you down financially at some point. Considering that 50% to 70% of small businesses fail within five years, this task is obviously harder than it seems. Yet it is a massive wealth builder for those who do it successfully.
Or you sell your equity (through a share sale or IPO), and you then maintain your wealth for the rest of your life. That means that you don’t spend your money on nonproductive goods and services and that you invest it wisely.

2. Save a significant part (20%) of your earnings and windfalls, and watch your spending. I should add, “… for at least 20 years.” It doesn’t matter if you earn a ton of money or a modest amount. What matters is how much you save in proportion to what you make. We have clients who are blue collar, save and don’t spend a lot, and have ended up quite wealthy. We also know plenty of people who earn more than $250,000 per year and can’t seem to get ahead. We’ve preached plenty about savings, but we still can’t stress this need enough. If you don’t save some of what you earn, you’ll always teeter on the brink of financial disaster and never become rich. Also, if you do get lucky enough to be a part of an IPO or inheritance and have newfound money, you can’t just start spending and expect to end up rich.

3. Own investment real estate. Real estate is one investment area where we see tremendous wealth alongside tremendous disaster. Successful real estate investors, whether instinctively or not, know that they’re buying a small business with each property and that timing matters. You wouldn’t buy a small business that’s losing money and that has little hope of becoming profitable, but people do it all the time with residential rentals. Successful real estate investors demand that the home is profitable from day one. They also maintain their properties through upkeep and diligence, treat tenants respectfully, and keep the homes for a long, long time. They also insure their properties well.

Many successful real estate investors have also had mentors (family members or professionals) who’ve had decades of experience. Mentorship isn’t a prerequisite for success, but if you don’t have a mentor, either get one or educate yourself through non-promotional means. Do not believe the constantly heard myth of “You can get rich in real estate by (fill in the blank).” Instead, educate yourself through objective classes, books, and articles from academic sources (i.e., not for profit) or property managers.

Flipping homes can be a quick way of building wealth, but this method has a higher failure rate with much more spectacular bankruptcies than regular buy-and-hold investments. Don’t be a flipper unless you have worked alongside one and know exactly what you’re doing.

4. Don’t make massive financial mistakes. Let’s face it, most of us are not Donald Trump. We simply can’t go bankrupt four times, get divorced two times, and expect to end up a billionaire U.S. President in our later years. Common financial mistakes we’ve seen are:

That “sure thing” investment that devastates most or all of a nest egg
Bad real estate or land purchase decisions, including remodeling and too much debt
Forming habits of overspending in any form, but especially with toys, vacations, and surgeries
Using most of one’s money on annuities or insurance products that combine investments
Lacking proper forms of insurance to cover large financial losses or serious health issues
Supporting a dying business using one’s own money
Supporting a family member with no foundation for future earnings
Spending too much on an unprofitable education—or a kid’s education, for that matter

5. Work for a company for 30 years with a solid pension plan that pays a benefit that rises with inflation. Don’t ever listen to someone who says you can’t get rich working for that old stodgy company or government agency. I’ve seen plenty of people retire with the equivalent of a $3 million to $4 million investment portfolio—it’s just in the form of a $10,000-per-month lifetime pension. That being said, if a pension doesn’t rise with inflation, if the pensioner dies and leaves a spouse or dependent without a payment option, or inflation decides to spike in the future, pensioners and their families will certainly suffer. A well-diversified portfolio of income-producing assets can help alleviate this concern. Also, if your pension plan is poorly funded, you stand the risk of being severely hurt if the plan cuts your pension payments.

6. Stay healthy. Having a healthy mind-set and staying in shape usually produce wealth. Yes, that’s right. “Health makes wealth” is a brilliant saying. Persistently unhealthy people usually end up impoverished in the USA, unfortunately. With large cuts to government-funded health care looming, you would be well advised to take the advice and do the commonsense things that healthy people do: Eat better and less, and exercise.

In Sum

One theme throughout this article that you may have noticed is discipline and patience. They may sound like fluffy concepts, but the research shows they are not. Wealthy people generally have productive habits. This is simple in theory: Practice discipline, continually strive to improve, look ahead 10–20 years, and combine those steps with savings. I will close this article with two book recommendations focused on this theme:

15 Secrets Successful People Know About Time Management for a practical, albeit obsessive, guide on discipline, productivity, and focus
Originals: How Non-Conformists Move the World for an interesting read on how patience, focus, and creative thinking propel success