In ‘raises- are they for suckers‘ I promised a followup on how to get rich. I have discovered it through years of painstaking research and the results may disappoint you. I am basing this on nothing but the accumulated reading of my life to date. So with no more buildup, here it is – how to get rich:
Spend less than you earn.
That’s pretty much it. I’ll break down each one of them starting today, but that is the short version.
1. Spend less than you earn. Quite simply, being rich in a financial sense – to me – merely implies that you have enough money. Whoa! What constitutes "enough money" is a very subjective concept. However, I would say that as long as you are making enough to provide for your basic needs – food, shelter, clothing – anything above that is gravy. Food does not imply lobster and champagne, but bread and milk, for example. Shelter is not a 4-bedroom house with 2 bathrooms for 3 people; it’s a warm one-bedroom with a bathroom… and so on. I am talking minimal needs, but once those are met the formula for ‘enough’ becomes pretty simple: if your income is $10 per year (after basics), spend no more than $9.99. If you can do this consistently, you will be more or less rich. That $9.99 may include savings for the future – and it should, unless the $10 will keep coming in forever. However, if you spend less than you earn, and have a plan to ensure it STAYS that way, you’ll always be rich. Here are the main tips:
- Don’t borrow money. Spend less than you earn. Spend less than you earn. You can’t complete that formula if you borrow money, because you’ll be spending more than you earn. Doesn’t work. Don’t borrow money. Ideally – and I realize this would be very difficult – that means don’t even buy a house if you don’t have the cash. That can be argued, but ideally you wouldn’t, right?
- Avoid buying, well, everything. Other than basics, stop and consider a few things before you buy stuff. I have 7 things to consider before you buy stuff right here.
- Have an emergency fund. This helps you deal with unforeseen circumstances that might make you borrow money. Again, in an ideal situation you would have an emergency fund for any possible emergency. That is probably unlikely, but you should aim to construct an emergency fund suitable to deal with the most likely emergencies: job loss, a catastrophic event or health troubles.
- Invest. Many people hear that and think ‘stocks! real estate!’ or something similar, but investing can cover more than that – building a business, getting an education, helping others. All of these activities have a return, although some have greater financial returns than others. Put some of your money away from you and let it work at creating something, be that dividends or improving the life of a child.
I’ll cover #2 and #3 Wednesday.