Scott Galloway shared his ultimate strategy for Americans to build wealth — and you don't have to make loads of money to do it

The professor claims one of his friends works at an investment bank and makes $3 million in a bad year and $14 million in a good one. While he lives in Connecticut and pays an incredibly high tax rate around 50%, by all accounts he still earns a lot of money.

“But between his ex-wife, his alimony, his child support, his home in the Hamptons, his Master of the Universe lifestyle that he thinks he needs and wants to signal to his friends, I know firsthand he doesn’t save a lot of money,” Galloway said.

He’s an example of what Galloway refers to as “the working poor.” Despite how much money the friend makes, his need to maintain a certain lifestyle is an enormous source of stress on him and on his marriage.

"Being rich is “an absence from anxiety,” Galloway said. “You want to be able to live well.”

That way, he says, if you choose to keep working in your golden years, it’s a choice rather than an obligation.

Leverage the power of compounding

From Galloway’s perspective, part of being rich means you’re bringing in more income from your investments than you spend. And building that passive income is easier when you start at a younger age, since you’ll benefit from the power of compounding.

For example, thanks to compound interest, if you invest $500 each month for 40 years, assuming an 8% annual return, you will end up with over $1.5 million. “I don’t put more than 3% of my net worth in any one investment,” Galloway said.

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‘Embrace diversification’

By Galloway’s own admission, getting rich — losing it — and getting rich again didn’t have a lot to do with him. For better and worse, it had to do with the market. And, in hindsight, it’s not a strategy he would recommend.

Galloway also recommends diversifying your investment portfolio, or spreading your risk across multiple asset classes, from more traditional stocks and bonds to alternative assets.

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“For your own financial well-being, much less your own mental well-being, embrace diversification,” Galloway says.

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Be disciplined with your spending

Galloway says that while you can’t control fluctuations in the market, you can control how much you spend and how much you save.

For example, Galloway’s retired father has a Royal Navy pension and Social Security benefits — plus, he owns about a dozen washing machines in trailer parks. He makes about $52,000 a year without really working (as Galloway points out, he enjoys going out to collect the machine quarters). Yet, he only spends about $48,000 annually.

“His passive income is greater than his burn,” Galloway said. “That’s the definition of rich.”

On the other hand, when Galloway was younger and worked for Morgan Stanley, he got his first bonus — to the tune of $28,000. He used this money to buy a $35,000 BMW.

But, he admits, had he bought a significantly less expensive car instead and invested the rest of the money in the market, he would have generated substantial savings.

Instead of spending money on fancy cars, you can grow your money steadily with a high-yield savings account.