Getting rich is not that complicated. It’s not easy, but it’s pretty simple really.
I’ve talked about this in the past, but spend less than you earn, invest the difference and avoid debt and you will be set.
So while you’re doing those things, you need to be tracking these 3 stats: income, expenses, and net worth.
By tracking your income and expenses you will be aware how much surplus you have to invest. If you are a W-2 employee with a salary your income might not change much, so focus your energy on lowering your expenses and maybe creating a side hustle.
By spending less than you earn, and investing the difference, you should now watch your net worth grow each month (unless the stock market is down). By watching these 3 stats, you undoubtedly will improve them and gain even more motivation as you see improvement.
Continually improve these three steps and you will become wealthy.
Step #1: Make more money
You need to get a raise at work, find a new job, take on a second job, start a business or side hustle. Get your hands on more money. You won’t get rich making minimum wage even if you crush the next two steps.
Step #2: Spend less money
If you become an income-machine but spend it all, you will never get rich. You have to not only make more money, but keep it so you can invest it. Eat ramen and beans for all I care, just don’t blow all your earnings.
Step #3: Invest the difference
Becoming wealthy is all about widening the gap between how much money you make and save, but then investing that extra money. You need to invest it and make a return on your money. This can be in the stock market, real estate, your business. Investing is about owning an asset that grows in value over time.
These are the three steps and they all work together. You have to improve all three if you want to become wealthy.
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You graduate in your twenties. You work 40 years until you retire in your 60’s. Hopefully you’ve been saving enough to make retiring a possibility. Now that you’re retired, is your health and energy level high enough to enjoy your retirement?
Money is a chain that keeps us slaves to our jobs and career. To those of us who want to retire early, money is a tool to free up our time and live a life we choose.
The Discovery of An Alternative
When I got my first job out of college, it was eye-opening because the thought of working for another 40 years made me shiver. I wanted better control of my future.
I started looking into alternatives. How could I start a business that made me rich, side hustles, blogging, new career paths that made more money, etc… I researched everything.
Eventually, I stumbled upon articles recommending finance books to read.
One of the classic personal finance books is called Rich Dad Poor Dadand I read that first.
Then I read it again.
Books and blogs slowly started to shape my thoughts about work and money, saving and investing.
After consuming so much content for a year, I looked back and saw my spending had been slashed and my investment contributions were much higher.
The idea of retiring early was fueling this change in my habit.
The 4% Withdrawal Rate
Retiring early is the concept of having enough assets that you do not need to work because the growth from your investments covers your expenses. The rule of thumb is that you can withdraw 4% of your investments each year because over a long period of time the stock market has returned higher than 4% + inflation.
Basically, we have to understand how much money we’ll spend per year and than multiply that number by 25.
So, if you want to spend $40K per year in retirement, you need $1M. Want to spend $80K? You’ll need $2M in assets.
If you can spend less, you need less of a nest egg.
Retiring Early = Freedom
The idea of retiring early is a concept in freedom. Currently, I am a slave to my paycheck. I trade my time in order to gain money.
When I talk about retiring early, I don’t necessarily want to retire early and do nothing, but rather have the option to work on projects that provide more life satisfaction by not having to work 9-5.
Accumulating enough assets will allow me to not work again if I choose. Instead, my money is working for me by increasing in worth over time.
This was an overview of the concept, getting to that point is the hard part. However, knowing there is an alternative to working 40 years is motivating.
You need to earn more, save more, and invest the difference.