What would you do if someone handed you a million dollars today? Quit your job and travel the world? Buy a boat? Help the needy? Toss your alarm clock in the trash?
Do you really want to get rich? I mean, REALLY rich? If you’re like most people, the answer to that question is probably “yes”.
Most people want to get rich; very few people attain independent wealth. Keep reading if you want to learn to be one of the few who reach true financial security.
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Create Your Path To Getting Rich
The number one reason most people never get rich is because they don’t make a plan to do so.
Making a plan to get rich can seem overwhelming, and in some sense it is. This is because you have to have the RIGHT plan for getting rich. Right for you.
Believe it or not, there’s no one-size-fits-all formula for getting wealthy. So I can’t give you that. But I can give a base plan for getting rich that will show you how to formulate your personal plan.
Follow these five steps religiously and you will ABSOLUTELY grow wealth. And whatever you do, DON’T skip step 4 – under any circumstances!
Ready?
Let’s get rich. But first…..
Why is it Wealth Eludes Most People?
You might be wondering: If I can tell you in four simple steps how to get rich, why does wealth elude most people.
Honestly, it’s for one of two reasons:
- People don’t know what to do
- They know what to do but choose not to do it
I can tell you what to do. But I can’t make you do it. Only you can make you do it. However, I will give you some motivation for doing it. Keep reading.
Let’s start with what you need to do.
1. Create a Spending Plan – Every Month
At the beginning of every month (or a few days before), you have to create the month’s spending plan.
I do this by listing the month’s expenses. It’s important to do this every month (as opposed to a basic budget) for one reason:
Everyone has different expenses, every month.
Some examples of fluctuating expenses in your budget could be:
- semi-annual or annual car insurance costs
- gifts for birthdays or other occasions
- vacations
- car maintenance or repair costs
- vet expenses
- clothing
You get the picture. Since costs vary every month, I think it works better to create a spending plan on a monthly basis.
Write Down Each Month’s Expenses
Start every month with a list of the expenses for the month. Next, compare that with the income you have coming in.
So, are you in the black? In other words, is there more money coming in than going out? GREAT!
You’re on the right track. But what if there are more expenses than there is income for the month?
If that’s the case, you’ve got two choices:
- cut your expenses
- increase your income
We’ll talk more about how to do those things in a bit. However, the very best thing you can do for your money is to create a spending plan every single month.
Track your spending and your wealth building in one place easily and for free with Personal Capital.
Bonus Hint
Before we go on to “getting rich” rule number two, it’s VERY IMPORTANT that you include discretionary expenses in your spending plan.
Plan for going out to eat. Doing things with friends. And leave a little extra for unexpected pop-up expenses, like $100 a month or so.
This is important because the money that’s leftover after you’ve created your spending plan is a key factor in getting you rich.
2. Give Your Plan That Secret “Get Rich” Boost
Now that you’ve created your plan, you need to give your plan a secret boost that all wealthy people know about.
Here it is:
So, you’ve created your spending plan for the month, and if all is well you’ve got some money left over after you count for your expenses.
Most people leave that money in their checking account. And what happens? It disappears into what I like to call the “black hole of spending”.
Random drive-thru runs. Surprise big box store purchases. Whim trips to the fancy restaurant downtown.
A little here. A little there. And then it’s gone. $200, $300, $400 and more every month. Just…..gone.
Most people lose hundreds of dollar a month via their black hole of spending. And they typically have no idea where the money goes to.
But you’re not “most people”.
So you’re going to focus on getting rich by giving every dollar of your income a job. However, this will take some planning – and some discipline.
Give Your Money a Job
Giving every dollar of your income a job – BEFORE YOU GET IT – will help you ensure you’re not wasting money on stupid stuff that doesn’t matter to you.
That’s the ticket.
It’s okay to spend your money on stuff that matters to you – even if that’s a daily latte or Taco Bell run. Your job is to figure out what really matters to you.
Then, stop spending on the stuff that doesn’t really matter.
For instance, does that daily latte mean as much to you as becoming independently wealthy? Then cut it out of your budget. Or cut it down to twice a week.
Find out what works for you – and then work your plan.
3. Invest Wisely
Next, you’re going to take that extra money you’ve found every month and set it aside…….until you’ve figured out how you want to invest it.
By taking that extra money the minute you get it – and putting it into some type of interest earning investment – you’re going to grow your wealthy exponentially.
What that investment is depends on your risk tolerance level and the type of investments you like to count on.
You might choose:
- Blue chip stock mutual funds
- Crowdfunded real estate
- High-yield interest savings accounts and CDs
- Crowdfunded lending
- Other non-stock income earning avenues
Hopefully you’ll choose a combination of those types of investments. The point? Use that extra money to get rich quicker by taking advantage of compound interest.
Rich People Invest Money
The point is that wealthy people get wealthy by investing money. Not only by investing money; but largely by investing money.
Your job is to educate yourself on the various types of investments and then start investing in a way that you feel comfortable with.
Take all of your extra money, every month, and start investing – NOW.
How Much Do You Spend?
The key to building wealth faster is to know how much you’re spending – and on what. If I asked you how much do you currently spend on food, gas, spending money, would you know the answer? Do you know how much your monthly bills are?
You probably know how much money comes in though, but it’s the money that is going out that is the problem.
If you can allocate a certain amount of money for each area, and stick to it, you can free up extra money in no time. It may take some adjusting to ensure that you are allocating enough funds, but stick with it, as it will be worth it.
Treat Household Finances like a Business
Smart business owners run their businesses in a way that ensure complete fiscal responsibility.
Whether you are self-employed, know someone that is, or really care about the company that you work for, you would not want to run the business into the ground, so it should be the same with your household finances.
You want to be as profitable as you can, having more money coming in than going out. So if you think about it as your business, you may be a little stricter.
After all, your family depends on you, and you don’t want to leave them with a mountain of debt and nothing saved up at all.
Get Out of Debt
Speaking of debt, whether you have a mortgage, personal or student loan, or credit card debt, you are probably spending hundreds of dollars a month just on interest alone, let alone the principal balance.
Just imagine how much money you could invest if you had an extra $500 month because you’d eliminated your debt. What about an extra $1500 a month?
If you invested $1500 a month in a mutual fund earning 7% annually, you’d have 1 million dollars after 23 years.
And while 23 years may seem like a long ways away, I promise you it will come quickly. So you may as well start getting rich in the meantime.
If you can free up all debt that you have, you will really make strides on getting ahead and staying ahead, with probably a lot more to show as far as savings and watching your income add up each month.
Be a Little More Frugal
All it takes to do this is for you to be a little more (or maybe a lot more) frugal. As we talked about earlier, decide what expenses are really important to you and which ones aren’t.
Give every dollar a job and start being a little more tight-fisted with your hard earned cash.
Reduce Expenses
Now that spending money is getting looked at a little closer and we make decisions on what is important and what probably could be avoided, the same can be done with your monthly bills as well.
You can start with your cable bill. With the amount of quality shows on HBO and Netflix these days, and since we DVR most live shows anyways, do you really need cable anymore to flip around hundreds of channels with nothing on?
If you keep your internet and get a couple streaming channels for $10 or so each month, you can still stay current on all the best shows, and probably accomplish a lot more without TV being a crutch to lay on the couch and relax.
Increase Retirement Contributions
You may need to contact a tax professional to see what is best for you between an ira vs 401k, but now would be the time to really focus on retirement, even if walking away from work is not for the next few decades or so.
If your work offers matching 401k contributions, that would be a good place to start, as otherwise that would be leaving free money on the table, and not be able to grow over the next thirty years, possibly missing out on tens of thousands of dollars that you would have had otherwise.
Retirement contributions are important for a wealthy building plan because they offer tax-sheltered money in many cases.
You don’t want to amass a fortune and give it away to Uncle Sam, so start looking into tax-sheltered investments.
4. Figure Your Why Out – and Never Forget it
The hardest part of getting rich is sticking with the plan. It’s easy to get bored with being frugal.
It’s easy to get comfortable because you’ve improved your financial situation “this month” and it feels like you’re sailing compared to how you used to live.
For instance, let’s say you’re used to living paycheck-to-paycheck with no savings.
After several months of hard work you’ve cut your debt load in half and have a plush $5k in savings. That’s gonna feel pretty great compared to your current paycheck-to-paycheck situation.
Pride can sneak in there (after all, you’ll likely be doing much better than a lot of your friends/family members) and you can start getting a little too lax in your goals.
You might find it easy to stop being frugal and slow down on your investing.
This is where your “why” matters. Your “why” is the reason why you want to be rich – and only you can decide (or you and your spouse) what that “why” is.
So before you start this journey, write down a list of your “why” – the reasons why getting rich is important to you.
What Are Your Whys?
Is it because you want the freedom of never having to clock in on someone else’s clock again? Because you want to travel? Because you want time to see your kid’s baseball games or dance recitals?
Make a poster board if you have to. Or a chart. Take pictures and hang them on a bulletin board above where you make out your monthly budget.
Keep a small list of whys in your wallet or purse. Just put the list in a place where you can’t easily forget it.
Your “whys” will keep you on track when you’re feeling prideful or when you’re feeling discouraged. This is why they’re vitally important.
Without this step, you have nothing to keep you from giving up on your journey when the going gets too tough – or too easy.
Summary
Here’s the deal. You can get rich. You can spend less. Earn more money. Discipline yourself. Learn about investing. And you can take the steps to build wealth daily.
No one can do it for you, but you can do it. Take the steps you need to take. Learn what you need to learn.
Then get to work changing your financial situation and making it better. Stronger.
And watch your bank account grow.
What steps have you taken to start getting rich this year? What is your “why”? Share in the comments section – we’d love to hear from you!
