There are lots of books, courses, online sources and gurus that are out there to help you get rich. Sure, much of the advice is good but there’s some basic things that must be followed in order to achieve wealth. If you look at the habits of the rich, there are certain things that most do. I hate seeing all the bad statistics out there about Americans and wealth knowing that there are things that everyone can do to get on the path to being financially sound.
The bad statistics I see are:
- 26% of Americans have ZERO savings.
- The average bank account has $4,436 in savings,
- Americans are saving only 4.4% of their income. Millennials are saving a NEGATIVE 2.2%.
- 38 million live paycheck to paycheck.
- About half of Americans would not be able to cover an unexpected expense of $500 or less. 23% can’t even come up with $100 in an emergency.
- Only 17% have an emergency fund (at least 3 month’s expenses).
- About 36% of people aged 50-64 haven’t saved ANYTHING for retirement.
- Net worth for people up too age 34 is only $11,000.
Yikes! These are frightening statistics and something everyone should sit up and take notice of. That’s the purpose of this post. I want to outline the path for being poor or being rich. Ultimately, it’s up to you. Trust me, old age gets here much faster than you think it will. Every day that you wait to do something about your future robs you of cash in retirement.
One note here. I use the words “rich” and “poor” on a relative basis. I’m not talking only about the “1%” for the rich versus everyone else. I’m talking about those who are on track for a good retirement vs those who aren’t on the right track. Of course, not all “rich” people demonstrate these characteristics nor do all “poor” people. There are always exceptions to every rule. These are guidelines for people to follow to achieve financial freedom. Some follow all, some part and some none of these rules. There is no guarantee that just because you follow everything here that you’ll become Warren Buffet.
Let’s get to it:
Budgeting. Poor people look in their accounts and see how much is left and spend it. Rich people budget an amount to spend each month and designate how much goes where. This means $X for groceries, $X for eating out, etc. Personally, I started keeping a real budget in 2015 and it opened up a new world for me. I started a spreadsheet in Google docs and it keeps track of my expenses for me. I developed it for you to use and It’s free and easy to use. I’ve even got a link for you to use as a template! This is only a template that I use for my personal budget Feel free to add, subtract or change it however you would like! I added some sample amounts for budget items. You just need to change them for your situation.
I never have to guess how much I have left for eating out, entertainment, groceries, etc. It will take effort on your part to keep track of your expenses. I ask for and keep every receipt and enter it in when I get home every evening. It takes 5 minutes so it only takes just a little time. Your future is worth it, right?
The key here is to set a REALISTIC budget. NEVER, ever, ever spend more than you make. That’s a hard thing to do for many people but you have to make it a priority. When setting up your budget, make sure that you designate money for savings. If you have a 401(k) plan at work, maximize it. They typically match up to a certain amount so why turn down free cash? It’s also a good idea to work towards saving in another IRA account that YOU manage. The company 401(k) is awesome, but they generally limit the types of investments you can make. Throwing some money in a regular or ROTH IRA makes sense…and cents!
Get a 3-6 month emergency fund built up so you don’t experience debt when you have an emergency. And you WILL have emergencies. The car will break, the kid needs braces, you’ll lose your job, etc, etc. Don’t touch it to buy something you want (ie. toys), only use it for emergencies.
I do think it’s important that you set aside money for fun stuff. Buy some clothes, shoes, electronics and vacations from time to time but only if it’s in your budget. Why not just use the credit card and pay for it later? Never! See why below.
Credit Cards. I believe that credit cards are the best and worst things ever to happen to mankind. There are great if you use them as a tool and not as “free money”. The average household has over $16,000 in credit card debt! This is where the poor person comes in. Not only because $16,000 is crushing debt and very hard to get out of, but it also limits your future ability to buy a house, get a job, save for retirement and so forth. Sure, it takes a little self-control (a novel idea, huh?) but remember, you don’t HAVE to have the latest iphone, clothes, electronics, car, etc. Buy what you need, not what you want (unless it’s budgeted AND paid for).
The rich person uses credit cards as tools to make, yes, I said MAKE money.
I use a credit card for almost every purchase I make. Everything from car repairs to $.99 drinks at QT. I do this because it pays me cash back with every purchase. The caveat is that I pay the balance IN FULL every month. If I don’t, the interest eats you up and you’re further behind than when you started. You can use the cash back to pay down debt or take a little and splurge. Remember, don’t splurge it all. Just a little and save the rest.
Assets. Rich people have a tendency to buy appreciating assets first and depreciating assets last. Saving money, buying stocks and buying a house are only a few appreciating assets you can buy. Poor people tend to buy things like new cars, new shoes, new just about anything first. These are depreciating assets and are pretty now but it won’t last. Investing in appreciating assets are pretty later. When buying something, consider first buying appreciating assets and after that, depreciating assets. Again, don’t buy them on credit (an exception is a house), only with cash and if your budget allows it.
Debt. Poor people welcome and embrace debt while rich people disdain it. Treat it as you would an enemy. After all, you wouldn’t let an enemy come into your house and take over your life, would you? So why would you let debt do that to you when you can control it?
Income. Poor people think only paycheck to paycheck and rich people think how they can use their income smartly. A great idea these days is to create multiple streams of income. Start a blog, get a part-time job, sell some stuff you don’t need. There are a lot of ways to add to your job income. No only is it nice to have “extra” money (make sure to add it to your budget and savings) but it also acts as a hedge against future job problems. If you have multiple streams of income, a job loss or reduction could be softened by other sources of income.
Investing. Rich people are disciplined and invest for the future. Poor people spend everything (and more) now with nothing to show for in retirement. We talked about this earlier when we talked about budgeting and buying assets. Today is the best day to get started. Tomorrow is the next best day. The idea here is don’t wait. If you think the stock market is too high, too scary or you don’t understand it, take heart, there are ways for you to learn. The key is to start now, even if it’s just $100. There’s lots of mutual funds out there that allow that and of course, get into a 401(k) plan if your company offers it. The 401(k) is the best way to start as a new investor because your company deducts it from your paycheck BEFORE you can get to it. That’s a great way to force yourself to save. Also, the money they take out is pre-tax! No taxes paid now, allowing it to grow tax free and you only pay taxes when you begin drawing it out, possibly at a lower tax rate. I can’t stress this enough, max out your 401(k)!
Be aware, DON’T ever take money out of your 401(k) plan for any reason. If you tap it now and then for some “toys” or other expenses, you’ll regret it in your retirement. Be steadfast and commit to saving the maximum you can before you ever see it. Don’t worry, you’ll adjust to a lower amount coming out of your check each month and soon, you’ll never miss it.
I mentioned that there are ways to learn about investing. I developed a 7 part course on how to invest in dividend-paying stocks. I walk you through how to develop the mindset of an investor all the way through putting your plan together. If you’re interested, sign up at the bottom of this post under “A Proven 7-Step Method to Start, Build and Retire with a 7-Figure Portfolio”. It’s free and it will help you understand investing!
Your family. You need to make sure to provide for your family’s future. This doesn’t necessarily mean what you earn and save. It really means making sure you have the proper amount of life insurance. If you die, are their future expenses taken care of? Rich people line these things up ahead of time and poor people think it’ll never happen to them. It can and does happen to people every day. Be prepared.
Job. You love your job and it’ll be there for you forever, right? I hate to tell you this but if the company you work for no longer needs you or they can save money without you, you’ll get fired. Rich people have developed multiple streams of income and developed networks to slide into something new. They also have the savings to withstand a job loss (remember the emergency fund?). Better yet, make sure to keep your resume’ ready at a moments notice and develop yourself by keeping up with your industry and technology.
I always told the people that worked for me to make yourself so valuable to the company that they CAN’T fire you! Adapt that same philosophy in your life. Try to make yourself unfireable! (That’s probably not a word but I like it anyway!).
Poor people complain about their job and never develop themselves for something new. They get caught off guard when fired and have no savings to fall back on. Then they use credit to further slide into debt and the problem gets deeper.
Live life. Rich people take the opportunity to explore new things, places and people. Poor people complain that they have no money or a way to do anything. There are lots of things to do for free and getting together with friends and family usually cost very little to nothing. Sure, you need to budget for now and to invest for the future. But you need to learn about this world and enjoy what it’s all about.
After all, you don’t get a second chance if you blow it the first time.
You can follow either path – rich or poor. Generally, it’s up to you as to the path you decide upon. It just takes hard work and discipline.
Go on, you can do it!
Until next time, happy investing!