It’s likely that you’re reading this because you want to pick up some quick tips or habits that will help you on your way to financial freedom. After all, that is why we all want to be rich, right? For the freedom (no matter how your define it). But what if we told you that you already know the secrets to being rich. When you think about it, they’re pretty obvious actually. While most of us intuitively know what to do, we get tripped up because we never actually do it.
Here’s a quick rundown to remind you of what you already know 😉
Becoming Rich Truth #1: Don’t Waste Time
In most cases, becoming rich doesn’t happen overnight. Money grows (compounds) with time. That’s the first truth and unfortunately the rest of them are just as unsexy – which is why most of us flat out ignore them.
When you’re making good money, it’s very easy to push off the important financial decisions. But the sooner you start planning for your future, the less you’ll have to compromise on that future. Even if you feel like you’re living paycheck to paycheck, you have to try to start putting money away – a little bit goes a long way – especially when you’re young. An app like Digit can really help.
Back of the napkin calculation: Every dollar invested at age 25 equals about $16 dollars at retirement but if you wait 10 years to get started, every dollar invested gets you only half as far. Start now.
Becoming Rich Truth #2: Avoid Lifestyle Creep
Have you ever said to yourself “as soon as I’m making more, I’ll save more, do more, travel more, etc.” but then a few years go by and you’re making more but you don’t have much more to show for it? The money still feels like it’s disappearing and maybe your lifestyle’s gone up a bit but it’s hard to measure. That’s lifestyle creep.
The danger here is that once you’re used to the higher income, it’s hard to give it up. Cutting back is painful. But if you get into the habit of recalibrating your savings whenever you have a pay bump, you’ll get to upgrade your lifestyle and upgrade your savings which will keep you on track to accumulating serious wealth.
As your income goes up, two things should happen, you should upgrade your lifestyle, but also upgrade your savings. An easy and automatic way to do this is to set your 401(k) to increase each year by 1%. As you get raises, some of the additional money will come to you and some will go to your future before you have a chance to get used to living off of it.
Becoming Rich Truth #3: Don’t Spend Money You Don’t Have
Obvious, right? But how many of us are carrying credit card debt that we don’t pay off at the end of the month. According to a recent study, Millennials range between $5-8k in credit card debt, depending on age and household income.
Most of us aren’t quite sure if we are living a life that we can afford. Read more about whether you’re living a life you can afford here. But a surefire way to stall your progress towards becoming rich is to spend money that you don’t have. There are two main ways to grow your wealth, either earn more or spend less. The greater the difference between those two, the faster you become rich, period.
A final thought. At Stash, we remind clients that there’s a monumental difference between “acting rich” and “being rich” and it’s important to delineate between the two. While you’re on your way to becoming rich, if you’re doing everything we’ve outlined, you shouldn’t have to feel like you’re compromising. It’s our goal to help you keep your lifestyle (the one you can afford) today while planning for the future.
We often joke that we don’t love taking on clients in their 40s because we don’t like delivering bad news. That’s not to say that 40-somethings can’t have it all, it’s just a little bit harder, but still possible.