If you want to become wealthy one day, what is your best option for getting there? Some might say to play the lottery. While this could provide you with wealth if you hit the jackpot, the odds of actually hitting the jackpot are slim. And let’s not even get started with the fact that you will most likely end up penniless quickly in a few years.
If you really want to become wealthy, you need to learn from these people and do what they do. Makes sense right? They know “the secret” of managing their money so the tips and suggestions they offer are ones you should listen to.
It’s the same idea with most anything in life. If you want tips on how to get ahead at work, you seek out someone in the position you want to see what you need to do to get there. Or if you want to run a 5K, you seek the advice of someone that runs 5K races. And when buying a car, you seek the advice of a friend that knows about cars.
So it shouldn’t be a shock that learning money management from those that are wealthy is what you should do. The problem is finding these wealthy people to talk to. Luckily, you don’t have to look very hard. In this post, I am going to share with you 7 tips from the wealthy so that you too can build your wealth and become financially free. Let’s get started.
Defining The Wealthy
Watch television or the movies or read magazines and you would think that the rich spend their money on high end cars, giant houses, lots of jewelry and the finest clothing money can buy. But you would be wrong.
The majority of the wealthy don’t live this way. Yes those people you see on TV and in magazines are wealthy, but they are uber-wealthy. They started their own businesses and grew them into dominant corporations. They can easily buy a giant house and a boat and not have to worry much about money.
The wealthy that I am talking about and the ones you should be striving to mimic are the hidden wealthy. These are the rich people that you wouldn’t even know are rich.
Some of you might stop reading here. Being a secret rich person doesn’t sound like much fun. You probably want to flaunt your wealth, right? Actually you don’t.
If everyone knows you are rich, you will get hounded by long lost family members looking for some financial help. You’ll get phone calls and junk mail nonstop to support various causes. The real fun is being secretly rich.
When you are secretly rich, you can go to a WalMart during the holidays and pay off all of the outstanding balances on the layaway gifts. You can take your friends out for fancy dinners and pay for it without worry over the bill. You can also leave large tips for unassuming wait staff members who really impress you with their service. When you stop and think about it, being secretly rich is a lot of fun.
So how do you get to the place of being secretly rich?
The Formula To Become Secretly Rich
When it comes to getting to a status of wealth and becoming part of the secret rich, many people don’t know where to start. Others that have started began by cutting their expenses. This is a good start, but isn’t the complete formula for wealth. Here is the wealth formula:
Reduced Spending + Higher Earnings = Wealth
As you can see, while cutting spending is great (and a requirement) it is not THE ONLY way to becoming wealthy. I say this because cutting your spending is finite. In other words, you can only cut so much. You can cut out the expense of cable and the expense of gas if you can walk or ride a bike everywhere. You can even cut your cell phone bill to under $40 a month. But you still need to eat. You still need shelter, you still need running water.
Once you get to this point, you are done cutting your expenses. If all of that cutting doesn’t result in a ton of savings, then you are going to have a hard time becoming wealthy.
In fact, many people won’t even get to this point. This is because they will find that their quality of life suffers too much.
Cutting your spending is like a rubber band. When you stretch out a rubber band, it either snaps back or it breaks. This is what happens to many people. They either cut back so much they hate life (rubber band breaks) and they give up and go back to their old way of living. Or they get to that point and go on a spending spree to make themselves feel better (rubber band snapping back). You have to find just the right amount of cutting back that you can sustain over the long-term and still be happy.
This is what happened to me. Back in the day when I was battling credit card debt, I reduced my “fun money” to $25 a month. The first month was great. I was committed to getting out of debt and stayed in a lot. But that second month, I hit the wall.
I hated not being able to go out with friends, not doing anything fun. So I rebelled. My stretched rubber band snapped and I went on a spending spree. So much for getting out of debt!
Adding In Higher Earnings
The second part of the wealth equation is where most people don’t focus their attention. This is a shame since technically, your earnings are infinite. You can get raises at your current job, move to a different employer for a higher salary, work another job, start your own side business, have rental income or investment income, etc. The list for growing your income is virtually endless.
Again though, if you go too far with this part of the equation, the rubber band is going to snap back or break, just like it did with your spending. The result again is to find the happy medium. Increase your income enough that you still have your freedom but you are making progress on your goal of becoming wealthy.
Combining The Two
When you combine reduced spending and a higher income, your result will be wealth. For example, if you were only to reduce your spending, you might be able to save $250 per month. In one year that comes to $3,000. Not bad. In 20 years, you have an extra $60,000.
But let’s say you worked on increasing your earnings. You earned a promotion at work that pays you an extra $1,250 per month. That is $15,000 per year. If you take that $15,000 and the $3,000 from savings and invest that money at 8% for 25 years, you are looking at just shy of $1.5 million dollars.
This won’t allow you to buy a yacht, but you would be wealthy and could splurge without a ton of worry.
Real Life Lessons From The Wealthy
Now we get to the part where the wealthy tell you how to become wealthy as well. While the equation I provided is a god starting point, I also wanted to give you tips from the wealthy and action steps for you to follow. The Washington Post produced a piece titled 7 Life Lessons From the Very Wealthy. Here is the list:
- Having money is better than not having money
2. Don’t become “cash rich” and “time poor”
3. Memories are better than material objects
4. Watch your “lifestyle leverage”, especially early in your career
5. Having goals is incredibly important
6. You must live in the here and now
7. It helps to be incredibly lucky
Action Steps on Life Lessons From The Very Wealthy
1. Having Money is Better Than Not Having Money
The point here is that money provides you with freedom. And I completely agree. When you have money, you have the freedom to live the life you want and not have to worry when something bad happens and whether or not you can afford a vacation.
Action Step: If you have money, great keep it up! If you don’t, find ways to cut back on expenses. Learn to budget so you can life within your means. If you need help doing so, buy alternatives instead of name brands. Save money on gas. Save money when eating out. Start a side business to earn more income. Then invest your money. To be successful at investing, read my post found here.
2. Don’t Become “Cash Rich” and “Time Poor”
While we all strive to have enough money so that we can do what we please with our lives, don’t sacrifice your time trying to achieve it. If you spend all day at work and only see your children to tuck them in at night, you may want to re-assess your priorities. In other words, don’t make money your idol. See it as a tool for getting you to where you want to be.
Actions Step: Learn what opportunity cost is and weigh all decisions, not just financial, using it. Remember that everything has a cost, not just financial, and you need to know what you are potentially giving up when choosing one thing over another.
3. Memories Are Better Than Material Objects
I think this is a learned point. In my teen years, it was all about the object: status symbols. I wanted the name brand clothing and the cool sports car. Now that I am in my 30’s, all I care about is hanging out with my friends. Even if we sit around all night talking, it doesn’t matter. I enjoy their company and I have those stories and memories for the rest of life. And I wouldn’t trade any of that for designer jeans.
Action Step: Appreciate life. Find out how to live a life of wealth. At the same time, learn to be present. The sooner you realize happiness comes from experiences and not things, the sooner you can build wealth.
4. Watch Your “Lifestyle Leverage,” Especially Early In Your Career
This is important. Many people graduate college and stop living the college lifestyle. They buy a new car, new wardrobe, and rent the nicest apartment they can find. They leverage their future. If you are a soon to be graduate, keep living the college lifestyle. It’s OK to live with Mom & Dad for a year or two and drive around the old beater a couple more years. With the money you save, you can get a jump start on your retirement. Remember, the sooner you start, the more time can work its magic.
Action Step: Question purchases, all purchases. Do you really need it? Will it help to get you to where you want to be in 5 or 10 years?
Advertisers are good at getting us to buy on emotion. They know that our brains have 2 sides, impulse and reason. They develop advertisements so that we make impulse buys. In a few hours when the reasoning side of our brain catches up, we regret the purchase. This is what we all call buyer’s remorse.
To overcome this, stop and question purchases to save money. When you think you want something, wait to buy it. Wait a minute or a week. Many times you will find you no longer want it or even remember it in the first place.
5. Having Goals is Incredibly Important
Goals are important. They keep you motivated and lead to success. I see setting a goal as challenging myself. I feel that I need to be challenged to grow and learn and I never want to stop doing either. Growing makes me a better person.
Action Step: Learn to set goals for yourself. Don’t make the mistake of setting many goals at once. Take it slow. I like to break my long term goals into short term goals.
Paying off $15,000 worth of debt sounds daunting. After a few months, you might give up. Leave your goal to pay off the debt, but set up a smaller goal. Try get your debt under $10,000. You’ll notice the progress more and will stay motivated throughout the entire process.
Once you get your debt to $10,000 have another goal to get it to $5,000. If these increments are still too big for you to stay motivated, then make them even smaller. Find what works for you.
6. You Must Live In The Here And Now
This one is hard, but is important. I like to visualize my future. While this is good, I must remind myself to stop and smell the roses. Life is a beautiful thing. Don’t miss it by living in the past or future.
Action Step: What’s in the past can’t be changed and what lays ahead no one knows. It’s necessary to have goals as mentioned above. But it is equally important that you learn to enjoy today. Take advantage of the life you have and enjoy it!
7. It Helps To Be Incredibly Lucky
This is interesting, and is true. “Luck is where preparation meets opportunity.” If you prepare yourself for the opportunity, don’t be surprised when it arrives. I like to say that for me, everything works out in the end. That might come off sounding arrogant, but it really isn’t. It’s meant to say that no matter how bad the situation that life throws me is, I stay positive and push through. I prepare myself for what’s ahead and I am able to take advantage of it when it comes.
Put another way, you might see the declines in housing prices and think, “man, others are so lucky to be buying houses right now. I wish I could, but I’m in debt up to my eyes.” They are lucky, but are so because they prepared themselves for the opportunity.
They didn’t know housing prices would tumble. But by staying out of debt, they prepared themselves to take advantage of the situation, whether it be with houses or stocks or something else.
Action Step: Believe in yourself. Believe that you too are lucky and prepare to take advantage of opportunities when they knock. No matter what happens, find the positives in life. Get out of debt and put yourself in the best shape you can.
So there is the blueprint for you to become wealthy. You need to make it a habit of keeping your expenses low and finding ways to increase your earnings. As you do these two things, reread the life lessons of the wealthy and learn from them.
In fact, I encourage you to bookmark this post and read them over and over again at various times. The reason is because when you are in different stages in life you will look at them from a different perspective. In other words, you will always be learning from them.
And this takes me back to my original point. Learn from those who are where you want to be. Seek out those that manage their money wisely and pick their brain. Learn from them and then use those tips and techniques in your life as you grow your wealth.