How Did Bill Gates Get Rich and Powerful?

Updated January 22, 2021
posted on 06-07-2019

As one of the richest people in the world for more than 30 years, Bill Gates’ current net worth is over $100 billion. But how did Bill Gates get rich? 

Let’s discover how the Microsoft founder grew his wealth and started one of the most famous companies in the world.

Was Bill Gates Born Rich? 

Born “William Henry Gates III” in 1955, Bill Gates wasn’t raised in immense wealth; his family would have been considered “upper-middle class” in the 1970’s. And though they weren’t living in a mansion, Gates’ childhood home boasts a waterfront view of Lake Washington – and is now worth over $1.5 Million!

Were Bill Gates' Parents Rich? 

Though Bill Gates' parents weren’t ultra-wealthy, they certainly did very well for themselves. Bill Gates Sr. was a successful lawyer in the Seattle area and was a partner at a law firm. His mother, Mary, was well-connected and on the advisory board of several non-profit organizations. 

They had enough money to send their son to Lakeside Private School in the Seattle area (and later paid for Bill Gates’ first two years at Harvard Law School).

How Did Bill Gates Start Microsoft? 

When he was in 7th grade, Bill Gates was first introduced to computers at Lakeside Private School. Lakeside had acquired a computer terminal to which students were given free access, and Gates was immediately fascinated, 

It was here that Gates met his future business partner, Paul Allen. The two of them took full advantage of the computer terminal at Lakeside, spending their free time learning to program. In exchange for more computer time, Gates and Allen created a computerized scheduling system for their school (and even rigged that scheduling system to put Gates into classes with more girls).

Using their passion for computer programming, the duo started making some money for their efforts by creating a computerized traffic analysis system called “Traf-o-Data”, which netted them $20,000 after selling it to the Washington State Highway Department.

The Early Beginnings of Microsoft 

Their big chance came when Gates was at Harvard Law School and Allen at Washington State University. After reading an issue of Popular Electronics (with the new Altair 8800 microcomputer on the cover), Gates knew that personal computing was set to take off. And he wanted to write the software that powered these personal computers. 

Gates reportedly called MITS (the maker of the Altair 8800) from his dorm room and offered to create software for it. MITS readily accepted and both Gates and Allen set to work. By 1975, the pair sold the software (as the programming language “BASIC”) to MITS for $3,000 plus royalties.

Desiring to be closer to the headquarters of MITS, Allen eventually moved to Albuquerque and Gates dropped out of Harvard to found their company “Micro-Soft” on April 4th, 1975.

How Did Microsoft Make Bill Gates Rich?

Microsoft retained the rights to the “BASIC” programming language and were able to sell it to personal computer hardware makers. The company grew rapidly and, by 1978, their annual revenue topped $1 million. 

Striking a Deal with IBM

In 1979, the team moved their headquarters to Bellevue, WA to gain access to a larger pool of talented programmers. By 1980, Gates struck a deal with IBM to develop the software for their personal computers. The company created the operating system for IBM’s PC (after buying it from another company and tweaking it), but retained the licensing rights to the software.

This proved to be a very big move. 

When the IBM PC launched in 1981, Microsoft annual revenues skyrocketed to $16 million. And by the time numerous IBM PC imitators came out, Microsoft had licensed its software to 50 hardware manufacturers.

Going Public

In 1985, Microsoft revenues were north of $140 million and they moved to their current world headquarters of Redmond, WA. In 1986, Microsoft went public and ended its first day at $28 per share. Bill Gates owned 11.1 million shares and was worth $310 million.

Microsoft continued to grow and in 1995, Bill Gates became the richest man in the world with a net worth of $12.9 Billion. 

Bill Gates’ Known Investing Strategies 

Though he gained billions of dollars through Microsoft, since leaving his CEO position in 2000, Gates has continued to grow his wealth through investing. In fact, his net worth has nearly doubled over the past 20 years, from $60 billion in 2000 to almost $120 billion in 2020.

Interestingly, Gates’ investments have been managed by Michael Larson at Cascade Investment, LLC since 1994. Larson has helped him earn a compound 11% annual return since 1995.

Bill Gates’ Top Investments 

Bill Gates once said, "To win big, you sometimes need to take big risks." His current portfolio reflects that style, as he is still an aggressive investor and had – even as of 2019 – 60% of his wealth invested in stocks.

Here are Bill Gates’ top 5 investments (as of June 2020 filing with the SEC):

Unsurprisingly, Gates’ famous bridge partner, Warren Buffett, owns the company where Gates keeps a high percentage of his portfolio. Gates is also on the Board of Directors for Berkshire Hathaway.

The other 4 companies are large, well-known brands that make up another $6 billion+ of his holdings. 

Bill Gates’ Charitable Work 

Gates is also known for his charitable work, giving nearly $50 billion away over the past 25 years (typically to organizations that support healthcare, poverty, and public education):  
“At the core of our foundation’s work is the idea that every person deserves the chance to live a healthy and productive life.”
Since 1994, Bill and his wife, Melinda Gates, have given away more than $45 billion to charitable causes, primarily through the Bill and Melinda Gates Foundation.

The Giving Pledge was founded in 2010 and 40 of the world’s wealthiest people committed to giving away a majority of their wealth during their lifetime. Today, more than 200 of the world’s wealthiest individuals and families have joined the pledge.

What You Can Learn from Bill Gates’ Money Management

What motivated Bill Gates to continue growing Microsoft was a thirst for knowledge and – as far back as 1980 – the vision that “a computer would be on every desk and in every home.” 

No matter where you are with your finances, you can learn a few valuable lessons from Bill Gates’ money management:

Invest in Stocks

With over 60% of his holdings in the stock market, Bill Gates knows the value of investing for long-term growth. Whether you build your own stock portfolio – or simply invest in broad-based index funds – investing in stocks can compound your money over time.

Focus on Giving

No matter how you invest your money, Bill Gates shows that giving is always an important part of your financial life. In addition to helping further a cause you believe in, giving also allows you to pay less in taxes. A smart investor always makes room for giving in their portfolio. Giving away appreciated securities is an excellent way to accomplish this and avoid paying taxes.

Don’t Be Afraid to Take Risks

When Bill Gates was a teenager, he saw an opportunity to revolutionize the world. He believed that the common thread for personal computers would be the software that ran them.

Dropping out from Harvard might have been a major risk, but his belief in the future of computers paid off in a big way. He was able to start a company that made him a millionaire within a few years, eventually becoming the youngest billionaire in the world in 1987.

You need a plan for your money (learning the basics of personal finance is important), but sometimes it pays to take big risks for something you truly believe in.