Do you want to get rich?….I’ll assume you’re nodding yes. Who among us doesn’t?! Well, outside of founding the next Facebook or winning the lottery it’s not going to happen overnight, or even that quickly. However it is still possible, but it takes discipline and planning. In this post I’ll outline 6 basic things I believe will put you on the track to building your fortune. This post is mainly aimed at 20-somethings and younger professionals, but I believe these things are important at any age. So without further ado…
1. Pay off your High Interest Debt! – This one seems pretty obvious, but by the amount of debt we as Americans carry, its obvious that most people don’t do it. The average American household has nearly $16,000 in credit card debt at an average interest rate of 13.1%! (Source) So as a young professional just coming out of college or grad school into your first “real” job. You probably have a decent amount of student loan debt and credit card debt. I know first hand how tempting it can be to finally be making some real money and have the urge to go out and buy a 60″ TV, an iPad, or even a new car. However it’s so, so important to first aggressively pay off the high interest debt you’re carrying around. Even by investing in the stock market, the average return is roughly 10%. So paying off your credit cards at 18% is a much better use for your money.
2. Live Below your Means – Along the same lines as #1…spend less than you ear and SAVE some of what you earn (sounds easy, right?!). What we’re trying to do here is BECOME rich, not APPEAR rich. The difference is huge. The easiest way to do this is to automate your savings. Set up a savings account and schedule automatic deposits to it from your checking account or your direct deposit on your paycheck. That way you don’t even have to make a conscious effort to put some money away for an emergency or to invest down the road. Living below your means also means not buying something just because you “can”. The general rule of thumb is to try to save enough cash for 6 months worth of expenses. Set up a budget and try to get to that goal. Once you hit that goal, keep saving and…
3. Make Your Money Work For You – The reason this blog is titled “The First Million is the Hardest” is because, well…it is! What I mean is that wealthy people make more and more of their money FROM the money they already have. Well we can do this too! You have a job, so you should be investing in your 401(k). At least as much as your employer will match, more if you can afford it. You can also invest in a Roth or Traditional IRA as I pointed out in a previous post. If you’re following the first 2 steps you’re already earning interest in your savings account, and now saving for retirement. You can still keep investing though! Investing in the stock market through broad, index based “exchange traded funds” (ETF’s) is a simple way to start getting more of your money working for you. Don’t be scared off by the panic in the news, as famed investor Warren Buffett says: “Be fearful when others are greedy, and greedy when others are fearful.”
4. Spend Your Money on Things that Provide a Positive Return – Now obviously you can’t do this all the time, but when making bigger decisions it’s a very important thing to consider. Say you have $15,000 saved up for a large purchase. It’s a better decision to use this money as a down payment on a piece of property instead of buying a new car. The car will lose nearly all of its value in the first few years you own it, where buying a house will let you build equity in the home as its price appreciates. Depending on the property you may even be able to rent some, or all if it out and give yourself a new source of income. Call me crazy, but I’ll drive my older car to the bank to cash those rent checks with a big smile on my face every time.
5. Invest In Yourself – If going back to school and getting an advanced degree, or getting a certification in your field will further your career and help you earn more money, do it! Yes, an education or certification program costs money (sometimes a lot) but in the long run the benefits will outweigh the cost by a large margin. This obviously depends on your field and career goals, but its something everyone should at least consider.
6. Work Your Ass Off – I’m not saying you have to work 80 hour weeks and burn yourself out by the time you turn 30, but give it your all at whatever you do. Go the extra mile, make a good impression on your boss, work hard and carry a positive attitude around the office. These things will ALL be remembered when it comes time for that promotion or raise. Its the oldest adage of them all, but hard work pays off. None of us are going to build much wealth if we don’t do what it takes to get ahead at work. After all, a bigger paycheck means more money we have available for doing all the things we need to do to increase our wealth and improve our lifestyle.
So there you have it. It’s obviously a basic list and most of it may seem like pretty common knowledge. Sadly, for the majority of Americans it’s not. While nothing is guaranteed to make you rich, following this simple advise will instantly give you a leg up on the majority of your peers who continue to build up massive amounts of debt and live paycheck to paycheck, spending money as fast as it comes in.
Questions or comments are always welcome, and if anyone has any other tips they’d like to share, by all means share it!