“How do I get rich?” This is one of the most common questions we get from friends, family, and clients.
There is no set definition of ‘being rich’. There is not a one-size-fits-all solution. Everyone has a different situation and financial goal. Also, it is important to mention that becoming rich or building wealth takes time – it is not an overnight process. Well…unless you win the lottery. But let us be realistic. You likely are not winning the lottery. You could, but chances are you should be working on Plan B.
There are some common rules that most financially successful people follow that have helped them achieve their goals:
1. The first rule is quite simple. You must earn it. If you want money, you must work for it. For some, that means a second job. For others, it means you must get a job to pay for school to open the door for a higher paying job. We are in the middle of a pandemic, and we understand that it is easier said than done. But if you cannot land a job, you can always do side projects or provide a service for someone who is not able to do the task on their own. It might not be a long-term fix, but it is a good temporary fix. Where there is a will, there is a way.
2. The second rule is without a doubt much harder than the first. You must save and invest your money wisely. If you spend everything you earn, you will not get the opportunity to let your money work for you. The power of compounding interest is a marvelous thing that you may not be taking advantage of. To get to the second rule and the following rules, you must have rule one checked off.
3. For the third rule, you must control your spending. Yes, this is the cousin of saving. We can not tell you not to buy that fancy watch or that lottery scratch-off ticket. If you can afford something that you want, sure you can go buy it. But, do not spend money you do not have yet. Most people who are well off, try to get the most bang for their buck. That means to maximize the benefits of what you are purchasing while keeping the costs low.
4. If you have gotten to rule four, you are on the right track. What you must do now is to minimize your tax liabilities. The more you pay in taxes, the less you have to save and invest. The power of compounding interest works better when you have a large nest egg, to begin with. How can you minimize your taxes? Well, you should be taking advantage of tax-deferred investment accounts. You can do that through a retirement account through your employer such as a 401(k) or a 403(b). You also can use an IRA. There are some rules regarding these retirement vehicles, but more on that in another discussion.
5. The fifth rule is to surround yourself with like-minded people. If your current group of friends can’t wait until payday to go blow that paycheck at the bars, you may want to reevaluate who you spend your time with. Spending time with people who have good financial habits reduces the temptation to overspend and encourages the right financial habits. This goes for marriage, too. Finances are the number one cause of divorce, so ensure you and your spouse are on the same page. No one wants to go through a divorce, so have honest conversations and seek help from a financial planner or counselor if needed.
Remember this is not a sprint. This is a marathon; there is no rush. Set small goals, achieve those goals before moving on to the next bigger goal. It can be done, so remain positive, and take care of your health. It is hard to generate income when you are not able to work. We will leave you with this: “How do you eat an elephant?” … “One bite at a time.”
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