How to Get Rich. This is just the million-dollar question, isn’t it? (pun intended)
Well, today is your lucky day. Today I, the Bearded Money Guy himself, is going to share with you… no… enlighten you on how to get rich quick.
Before I get to that, I want to point out that “rich” means different things to different people. But for the sake of this post, I’m talking about achieving financial independence.
So… Are you ready?
How To Get Rich Quick
First, it’s not possible to “get rich quick”. Nothing in life comes that easy. Unless you win the lottery (which I do NOT suggest as a wealth accumulation strategy), there are few things in life that will lead to immediate riches.
But here’s how to get rich. It’s simple actually. Spend less than you earn.
That’s it. If you consistently spend less money than you earn, you will become financially rich.
On the other hand, if you spend more than you earn it doesn’t matter how much money you make – you will never become truly rich.
But you didn’t come here to read that. It’s common sense. Everybody knows that to accumulate money you must spend less than you earn. We learned this in grade school.
So why do so few people adhere to this advice? I submit there are several reasons.
The most obvious and glaring answer is that you are impatient. You have wants and you are either unable or unwilling to put those wants aside and delay your immediate gratification.
For other people, the answer isn’t so simple. Perhaps you have a medical condition that is expensive to treat and not fully covered by insurance. Perhaps you are disabled and unable to work, while your living expenses continue to pile up.
Either way, if you are unable to spend less money than you earn, you will never attain financial independence, i.e. you will never be “rich”.
So that’s the simple way to look at how to become rich. Now let’s dig a little deeper. How exactly does one spend less than they earn?
As I see it, there are two methods. Spend less or earn more. Let’s take these one at a time.
Spend Less (i.e. get on a “budget”)
The first method, and the one espoused by many financial “gurus” is to get on a budget and spend less money. In other words, if you stop spending $5 on Starbucks every day, you will save $100 a month and $1,200 a year. Over 5 years, that’s an extra $6,000 plus interest in your savings account. Right?
That’s bullshit if you ask me.
If you don’t spend that $5 on the Starbucks, chances are you will spend it somewhere else. I don’t see people jumping onto their online brokerage account and depositing $5 each and every time they avoid the coffee shop.
It’s not happening.
Budgeting is a great technique, but it’s nearly impossible for many people. And if you are in a marriage where you have a saver and a spender (you know what I’m talking about), then whenever there are a few extra bucks in the checking account – they are as good as gone.
That’s not to say that I don’t think budgeting will work for all people. There are definitely some very frugal folks out there who are willing to scrimp and save and count every penny in the name of financial independence.
But that’s not me. And as much as my Wife would have you believe otherwise, it’s not her either.
Let’s look at an example from this past week. I’ve got a 12-year-old cat named Oliver. I love this cat. He has been my best buddy since the day we got him. He sleeps next to me, he sits on my lap whenever I’m on the couch, he bugs me when I try to get up early to work. In other words, he’s always there and I totally love him for it.
But about two weeks ago I discovered that Oliver had a lump on his neck. We took him to the vet for an initial exam… $300. Then we took him back for some additional testing under anesthesia… $270. Today we took him in for a chest x-ray… $230.
That’s $800 bucks we’ve spent on him in the past week. To some people, that’s a good chunk of their monthly budget. And while we have the money to pay it, it’s a good chunk of our budget also.
So what would the people on the budget say? Don’t pay for the vet? Let him die? Don’t get a cat in the first place?
None of those are viable options for us. Oliver is an integral part of our family, and we will do all we can to keep him comfortable until his time comes.
But that’s just one example.
What if you get sick? I pinched a nerve in my neck last summer, and even with health insurance, I incurred about $4,000 in doctor and chiropractic bills.
Sure, the budgeting masters will tell you to put away a savings fund in the event of these emergencies. And maybe that is the answer to weather the storm.
But I think that is a short term solution. And here is why. You can only save so much money through budgeting.
Bottom line – if you live in America, the cost of living is higher than in other parts of the world. If you are single, you can probably live pretty modestly if you really wanted to. But a married couple with kids, a mortgage, day care, etc. will need at least $3,000 to $5,000 per month to live… and this assumes no debt, no student loans, and no car payments.
How do I come up with that number? Let’s assume a married couple with 2 children.
- Mortgage/Rent = $1,000
- Utilities = $300
- Household Expenses = $100
- Entertainment = $200
- Daycare = $1,000
- Groceries = $500
TOTAL = $3,100
If you ask most people, this is a bare minimum. And according to people like Mr. Money Mustache, who is about as frugal as you can get and claims to live on $25,000 per year with his family (and no mortgage), this budget is probably pretty accurate.
But here’s the problem with this budget. It does NOT account for things like insurance (life, health, car, homeowners), cell phones for you and your spouse, costs of health care, clothing, vacation, etc.
Once you start to add those things in, your budget can quickly balloon to closer to $5,000 per month.
The average household income in the United States is $57,616, or $4,801 per month. Is it any surprise that with a household budget of $5,000, by budgeting you are playing a loser’s game?
And for argument’s sake, let’s say you can get by on $3,500 per month. After taxes, you can save roughly $1,000 per month (again, assuming you have no debt, no student loans, and no car payments), which gives you $12,000 at the end of a year. With a modest interest rate of 7%, at the end of 10 years you have stashed away a cool $173,085, and at the end of 20 years, you would have $520,926. (I have to admit, compound interest is pretty cool).
Congratulations, you just lived like a hermit for 20 years and now you are ½ the way to a million. And this doesn’t account for inflation or what would happen if you lost your job, had a serious health emergency, etc.
Sound like a plan?
Not to me. Let’s look at a different way.
*I sat on this for a day after I wrote it, and I’m all for being frugal and saving money where you can. If you have a high enough income and can easily live on 35-50% of your current after-tax income, then, by all means, stash away and build that nest egg. But I just don’t think it is realistic for many families.*
Earn More Money
The other side of the “spend less than you earn” equation is to earn more money.
I know what you are thinking – sounds easy enough, right? But what about everyone in the real world? You can’t just walk up to your boss and ask for a raise, can you?
Probably not. But you can provide more VALUE to your boss, to your job, or to the public at large.
Here’s the real secret to getting wealthy…
Your financial income is directly related to value you bring to other people. The more value you bring to others, the more income you will earn. It’s that simple.
There are a lot of people who have really hard jobs – and I respect them more than you know and very much appreciate how hard they work. But that doesn’t mean that the fry cook at McDonald’s is bringing a lot of value to the general population. There is a reason they are making $10 an hour. They are replaceable. You can plug almost anyone into that job and they would be just as efficient at flipping burgers.
Lebron James, on the other hand, commands a higher income because he is the best basketball player in the world. As much as I would love to play professional basketball, it’s just not happening. I could never replace Lebron James.
But just because you can’t play professional basketball doesn’t mean you can’t increase your value to others in different ways. You can learn a skill, invent a process, or start an innovative business in your area. You can stop getting paid as an employee and start a business as an employer.
There is an unlimited amount of money in the world – so long as governments keep printing it, you can earn more of it. And the fact that you earn more does not mean that someone else will earn less. Getting rich is not a zero-sum game.
The more value you provide, the more you will earn. Don’t be complacent. Don’t settle for $57,616 per year. You can do better. You can be better.
Am I suggesting you run out and quit your job tomorrow to start a business? Absolutely not.
Don’t be stupid.
But I am suggesting that you start to expand your mind to the possibilities that are out there.
You can do better than you are doing right now. And if you can earn $100,000 or $200,000 instead of the paycheck you are getting right now, then all of a sudden your budget, assuming you maintain a similar standard of living, quickly becomes irrelevant.
Let’s say your budget, after tax, is $8,000 per month. You would need to make approximately $120,000 per year, pre-tax to sustain that budget. If you want to become financially free, you could either cut your budget back to $5,000 per month and sock away that $3,000, or you can focus on growing your income to $156,000 per year or more. Either way, you are still saving $3,000 per month. But by earning more, you can live a more fulfilling and richer life.
You can only budget so much. But your income potential is unlimited.
Let’s Go Meta on This “Earn More/Spend Less” Idea
Let’s take this whole earn more, spend less idea to another level. What if it were possible to do both? What if you realized that right now you are actually living beyond your means and that you could cut back on your budget?
What if it were possible to do both? What if you realized that right now you are actually living beyond your means and that you could cut back on your budget?
What if you realized that right now you are actually living beyond your means and that you could cut back on your budget?
You just fast-tracked your road to financial freedom. You have decided to throw gas on the flames of life and something is going to go BOOM – your bank account.
Most people are unable to do this right away, but this is what can happen after you spend down your debt and start reallocating those debt payments to your financial freedom nest egg.
What’s Coming Next from The Bearded Money Guy?
You are in for a treat.
I’ve got so much to discuss on this blog. Here is just a sampling of the posts I’m lining up in the coming weeks:
- Ways to Earn More Money Without Leaving Your Day Job
- The Beginner’s Guide to Paying off Debt in 5 Easy Steps
- How Much Money Do You Need to Reach Financial Freedom?
- Income/Expense Reports for the BMG
- Much, much more.
Like what you are reading? Feel free to drop a comment and share with me your thoughts. Let me know whether you agree or disagree with my thoughts on finance and money. Also, would love it if you shared this post on you social media channels so that we can reach even more people and start to change the relationship that people have with their money.
Who is the Bearded Money Guy? Click here to learn more.