There is a lot of talk in the news about income inequality. The rich are getting richer while everyone else is struggling to survive. I pointed this out in my post about how 80 people control half the world’s wealth. The post below isn’t meant to take a shot at the rich, but rather take insight from how they live so that we, the 99% can improve our situations. So what can we learn from them to better not only our financial lives but our overall life as well? Here are some practical steps for how the 99% can make it.
Key Steps For How The 99% Can Make It
Strive To Succeed
All too often anymore I hear people complain about how they don’t have this or that. When I ask them (or hear them being asked) what they have done to get the thing they want, many times the answer is nothing. No one makes it in the world without hard work and effort. If you want something, you have to find a way to get it.
When I wanted a new job because I hated the one I had, I didn’t just sit around and wait for a new job to find me. I put in a lot of time researching and applying for jobs. And I failed miserably. I don’t know the exact number of jobs I applied for, but my guess is it was around 50. It took me 6 months to find the great job that I was finally offered.
I could have easily given up, but I didn’t. I spent many nights searching for jobs, networking and tweaking my resume. I have a friend who didn’t go to college and was sick and tired of working minimum wage jobs. He took the time to figure out what he wanted to do. He wanted to work on cars. So he applied to a technical school and got in.
While he took classes during the day, he worked nights and weekends at a grocery store to help pay for the cost. A few years later, he graduated and now as a mechanic is making close to $100,000 a year.
The point is that you have to work hard if you want to succeed. But don’t think that just because you work hard, things will land in your lap. You still need to put in some effort to make it all come together. And even then you won’t always get what you want. It’s how life works. But if you work hard and put yourself in the best possible situations, more times than not, things will work out for you in the end.
One last example on this point – many times we look at professional athletes and think how lucky they are. They get to play a game for a living and have months off when the season is over. But the truth is, they are working hard all year long. We only see them for the 3 hours they are on TV playing. We don’t see the 8 hours a day in the gym and practicing. We don’t see them sacrificing what they eat so they can stay in great shape. We don’t see them sacrifice time with friends growing up because they were at camps looking to improve.
No one gets handed something in life (unless they inherited their wealth and then many times they end up broke anyways). There is hard work involved. So the key here is to stop watching so much television or letting Facebook steal your money and be productive. Learn from those that are successful and develop the same habits.
Pay Yourself First
If I ask you “who do you work for?” most will answer “for the big corporation”. While this is technically true, everyone really works for themselves.
You work to better your life. When you get a paycheck, that money is yours. You choose to spend it as you see fit. Everyone uses a portion of their paycheck to pay someone else, either through paying our credit card bill (or debt), our mortgage/rent, gas, groceries, eating out, etc. You are taking your money and paying someone else for a service or a good. There is nothing wrong with this, as some of it has to be done in order to survive.
But what the majority of the 99% don’t do is pay themselves for working. They are debtors, not investors. They spend first and save second and come the end of the month, there is nothing to save. If you save nothing, how can you expect to improve your financial situation? You can’t. You will just stay in the same financial place forever, or in some cases, end up worse if you spend more than you earn.
Your key here then is to change how you save, or in some cases, start saving. You should take your paycheck, save 10-20% (studies show that the average millionaire saves at least 15%), and then pay your monthly expenses.
Some will read that and argue that if they were to do that, they would not have enough money to go out to eat, buy clothes, etc. If this is the case, then unfortunately you cannot afford to do these things. You will need to stay in and find something else to do for entertainment. You will need to make sacrifices. Find ways to cut your monthly expenses if need be. Many of us can afford to cut a little here and there so that we can survive. (Again, if you don’t, you are going to wake up in the same – or worse – financial situation in 5, 10 or however many years into the future.)
Aside from those that inherited their wealth (and less than 20% have inherited their wealth), millionaires are self-made. How did they do this? They paid themselves first. That is how they became the 1%.
As you accumulate money, the rate at which it grows (or compounds) accelerates. (Play with this savings growth calculator to see for yourself. To read more about the 1%, read my post on interviews with the 1%.)
If you don’t want to play with the calculator I mentioned above, below are various amounts of money saved and the interest earned in a given year if that amount were to grow at 1%, which is roughly what you get in a high yield savings account today:
Now here are the same saving amounts earning 6% per year, which is a conservative estimate of what you can expect to earn over the long-term when investing in the stock market.
Notice that the more you have, the faster it grows? This is why most of the income the 1% earns each year is investment income. This is also why they pay so much less in taxes – investment income is taxed at a lower rate than ordinary income (income you get from working a job). So if you want to pay less in taxes (and who doesn’t) then start saving more so you can earn more and pay less in taxes.
Realize that when you invest a large amount of money, it is going to quickly grow into larger amounts of money. Just look at how much you earn from $1 million dollars. Would you be happy earning $60,000 for doing nothing? I know I would.
And don’t think for a minute you need a professional money manager to invest your money. Betterment will help you to control the things you can control when investing so that your chances of success are increased. You can even choose to invest with a firm like Motif Investing where there are set motifs already made for you to invest in.
Look At The Long-Term
There is a very real difference between the 1% and the 99% in terms of outlook. Not in the sense that I talked about above, but rather in the point of view of time frames. Here is what I mean by this:
When shopping for a car, many people focus on their monthly payment. If they can afford the monthly payment, then they buy the car. Very few people do the math and look at the overall cost of owning a car, including the interest payments from the loan.
The difference between these two outlooks is huge. The 99% look at the monthly payment, or the short-term. The 1% look at the overall cost of the car, or the long-term. By looking at the long-term, the 1% sees just how much the car will cost them and if they really can afford it.
Think about this for a minute. You are looking at buying a new car. If you look at $400 per month, that doesn’t seem like so much money, right? But if you look at the long-term and see the car is costing you a total of $45,000 including interest that might change things.
Just think of the things you could do with $25,000 if you bought a nice used car as opposed to the brand new car:
- You could take some nice vacations
- You could pay down your mortgage
- You could save more for retirement
- You could invest it and earn $1,500 a year assuming a 6% return
By just changing your point of view to the long-term, you can save so much money. I do this all of the time. Before I buy things, I ask myself what I am really getting and whether I would be better off not buying the item in question.
This has saved me many times in terms of not buying clothing. It helped me save money when looking at a car too. I really liked one model, but the manufacturer makes various brands. The same car is made by their sister company and costs $5,000 less just because it doesn’t have the luxury name brand associated with it!
Learn to shift your point of view to the long-term and great things will happen financially.
So let’s recap the steps that you are going to start taking so that you can improve not just your financial life, but your overall life as well.
First, you are going to stop thinking that things get handed to people and start making an effort to be more successful. Commit to turning off the TV an hour before bed and reading or working on a new business idea, or getting your finances in order, or spending that time with your spouse or kids. It doesn’t matter what you choose, just don’t waste the time on mindless entertainment.
Next, you are going to start being smarter with your finances and save first and spend what is left over. If you have a 401k plan through work, start investing in it. If you do invest already, email human resources and increase the amount.
From there, you want to build up an emergency fund. This can be done through automatic transfers – trust me, automation works. Heck, take 2 minutes right now and open an account with Digit. It’s worth the 2 minutes. (You can read my review about Digit here.)
Finally, you are going to start investing outside of you 401k plan so that you can grow your money at a faster rate than through a savings account. If you have no clue where to start when it comes to investing, don’t worry. Start off by reading this post. Then figure out which of these online brokers makes the most sense for you.
I’ll even take it one step further – if you are completely new to investing, narrow your choices down to the two I mentioned earlier, Betterment and Motif. Either option will let you set up an automatic investment and you won’t have to really do much else. If you have experience with investing, then the other brokers work best (though the other 2 I just mentioned still work here as well). Look at Schwab or Scottrade as two starting points.
Finally, you need to start to work on looking more at the long-term rather than the short-term. This is true with income, spending and investing.
With regards to income, you have to find the career that you will be happiest with. Sure you can take that job that pays $100,000 but if you hate it, it will burn you out quickly and life will be miserable. On the other hand, the job that pays $50,000 might be the one that excites you. This will help you to be happier and more motivated and in many ways, will help you out-earn the higher paying job.
When it comes to spending, stop before you buy. Ask yourself if you really need it. Ask if buying it gets you closer or further from your goals. And then picture your life 5 years from now with the item. Will that new shirt really matter to you in 5 years? Odds are probably not.
And with regards to investing, to earn a decent return, you have to stay invested for the long-term. If you are constantly buying and selling you are never going to make money in the market. Identify some solid investments and hold on to them (and keep buying more) year in, year out. Educate yourself about investing so that you can learn to tune out the noise of the market. Over the short-term the ride will be bumpy, but over the long-term, the ride will smooth itself out.