How To Become Rich

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Spend less than you earn. It doesn’t matter what you do for a living. It doesn’t matter if you have a college degree or were born into a wealthy family. It doesn’t matter if you work full time or part time. It doesn’t even matter how much money you make! What matters is how much money you spend in relation to how much you make.The rich spend less than they earn.

It doesn’t matter where you work. As long as you are making money and you can live off less than you earn. If you save and eventually invest the rest, you will become rich. If you can save $3 each day, that’s $1,200 per year that you will have saved up. In one year you will have more in savings ($1,200) than the average 34 year old ($0).

But I only make a small fortune per hour (compared to the rest of the world), says almost everyone. It doesn’t matter. Someone that makes 300k per year and spends 300k per year may be no richer than someone making minimum wage that lives frugally and saves competitively.

The temptation that most people face is to continue to blow all the money that they make today, because tomorrow, when they are making more money, that is when they will start saving! This goes on for years, and maybe their income increases, but just as quickly another expense is added.

Common objections

“I could stop spending money tomorrow and build my savings up quickly.” This person will always say tomorrow and tomorrow will never come. Not acting on what you know to be wise today is foolish. Foolishness only tends to get worse, like weeds in a garden.

“I need to buy such and such and then I will start making enough money to save.” After such and such is purchased, something else will arise that needs your money. The cycle will repeat and no money will ever be saved.

“I’m not making enough money to save.” You will never make enough money to save then. If saving money isn’t important enough for you when things are tight and money is slim, then it won’t be important to you when money is rolling in. Past behavior is the best predictor of future behavior.

Steps to becoming rich

1. Spend less than you earn. Don’t just stop there, get competitive about it. Spend as little as possible while still living at a level that won’t cause you or your spouse to become bitter.

2. Get an envelope and write the words “My Family’s Financial Future” on it. Then if you are tempted to take money out of it you will be reminded that you are only robbing from your family and your future self.

3. Pick an amount that you will put in every day no matter what. I would encourage you to start with $5 or $10 a day. $5 a day is about $1,800 in a year, and $10 a day is about $3,600.

If you have a full time job, find a hobby buying and selling things on Craigslist so you can earn extra money to save. Also, just because you are saving as much as you can doesn’t mean you are to live a life free of pleasures. Pick your pleasures and save for those at the same time. Don’t divert your savings to a vacation or some item you want to purchase, but rather figure out a way to save even more so you can accomplish both.

If you cannot, or will not live on less than you make today, you probably won’t tomorrow either. Five dollars a day doesn’t sound like it will amount to a lot, but it really is the difference between the rich and the poor.

I’d love to hear your thoughts, what’s worked for you or advice you would share for others. I hope you are all doing well.

*I wrote this post to try to encourage as many people as possible that it only takes a few dollars a day to change your financial future. Be willing to start small and make an goal to increase it as much as possible. I hope many of you find it encouraging.
-Ryan

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From Oregon now live in Hawaii. Father of 5 beautiful children and married to an amazing wife. I love to buy and sell things and add as much value as I can in between. I also love helping people as I have been the recipient of much help myself.

18 COMMENTS

  1. Thanks for this reminder. “Spend less than you make” as the road to wealth may seem like would be common sense, but it’s clearly not. This was a nice reminder to wake up to this morning.

    Until I increase my income on a larger scale, small things like carpooling to save on gas, looking for coupon codes before buying online, comparison shopping, volunteering or working at events I want to attend, and (my least favorite) cutting way back on our weekend dining out continue to make a difference. If I can continue those habits as my income increases, I’ll be able to accumulate savings a lot faster.

    Thanks again!

  2. A friend of mine would put any change in his pocket into a jar. His wife would do the same. They’d do this every day. He claimed that at the end of a year they were able to pay for a vacation mostly by the change they’d saved. I don’t think their idea was as good as consciously putting money away each day as you suggest. Seems like they’d have to spend money in order to get the change but I guess it was a start. A wise man once said, “If your income is less than your outgo, your upkeep will be your downfall.”

    • I’m a big advocate of spending cash, which will result in more change in one’s pocket. My reason is that you feel it more when you spend the money. It’s like it’s more real and permanent. Then we save on top of it as well.

      That’s a good quote!

  3. Good article and words to live by. As a landlord I see the painful results of people’s lack of planning every day. I see folks with great careers with good incomes BUT yet have no savings…to the point that when/if they are approved they don’t have the money to pay the first month’s rent and security. What is even more troubling there is no sense of urgency to correct the problem. On a different subject I have acquired a 2 year old GE washer that has issues….water level doesn’t respond to the control and the machine won’t “cycle correctly”. I’m thinking timer and maybe the level control valve as well…but these cost over $80…is this worth it? Thanks in advance for your help!

    • Thanks. As far as the GE Washer goes, it’s really hard to say. I really don’t touch GE washers. If it’s the timer, it’s probably not worth fixing, especially if there are other issues as well. I would sell it “as-is” on Craigslist, someone will pick it up and either use it for parts or try to repair it.

  4. Very wise words.

    When I was 18, I worked for a call center that sold a debt management tool. I was shocked at the variety of people that I talked to, at all income levels. Broke means broke regardless of yearly income.

    I agree with Candice, a great article to wake up to this morning.

  5. I’m 25 years old and its amazing how many friends and even family I have seen not be able to grasp this concept over the years. I don’t come from a family of any kind of wealth, I never had a job where I made a lot of money. I’ve paid all of my own bills and expenses on my earnings since I was 15. With this concept I’ve managed to save close to 20k in savings. Of course through life I have had to tap into that here and there for emergencies and what not. And in the grand scheme of things 20k can disappear in the blink of an eye. Separate from my own savings, as of a few months ago me and my girlfriend started saving for “our future” where we each put $250 a month into a joint savings account. I hope one day, this thought process makes me rich. lol. It never made sense to me to live where your outcome is more than your income. Especially if you are in control of the financial situation. There’s always the unfortunate scenarios that happen but if you can help it, Save.

    • And once you get a big enough amount in savings, you can pick up a little rental property and turn it into recurring income. Then buy another and another. It all starts with being willing to put a little away. Thanks for sharing!

  6. Ryan,

    This is excellent advice. One epidemic is that Americans are fooled into using credit to buy junk and finance it. Staying out of financing for crap can help you gain tremendous ground. I would add to your article, finance only your home, and save and pay for everything else. Many people would say, “Oh, but I got an excellent interest rate on the new car!!”. Ask them if that interest rate takes into account the depreciation of that car when they drive it off the lot, or if when they sell that $30k car for $11k in 3 years. Don’t “invest” your money in things that go down in value, or you’ll have nothing. Both our vehicles are 11 years old with about 170k miles each, and I plan on driving them until the wheels fall off.

    Further, if someone finds them self in a financial problem, then increase the income, and decrease the outgo, and use the difference to get out of the hole. I delivered pizzas part-time after my full-time job for a year a few years ago. Was it what I dreamed of doing? No (but it was kinda fun). Did I make significant extra money to change the position that my family was in? Absolutely. It took discipline to work 70-80 hours per week and my wife was onboard with the plan and supported me as well.

    • Thanks for sharing Travis, I completely agree. Vehicles are one of the biggest money drains that people have. We not only paid cash for our used vehicle, but we also downsized to just one car. If you can get away with it, you save a ton of money.

      Being willing to do whatever it takes to build your “savings momentum”, via an extra or side job is incredibly important. It’s like the spark that starts an engine. Once your going, it’s much easier to keep making progress. Thanks again for sharing!

  7. One idea on the vehicles, that I recommend to my clients (i’m a real estate agent) is once you’ve saved enough to purchase a car, let’s say 15,000.. instead purchase a rental house with that. The income off that property will make the monthly payments on the car. Then you’ve got an appreciating asset paying for the car, and once the car is paid off, then you’ve got income.

    • I like using rental income to be able to afford things. Yes. Yes.

      Steven Hong is correct. I love it.

      But..

      Cars. Purchase cars with cash. ONLY cash.

  8. The problem is: What to invest in?

    Buying “a little rental property” has been the financial downfall of more people than the Rich Dad/Poor Dad books will let on.

    If you happen to be lucky enough to buy at a time when you end up winning the real estate lottery, then great! But good luck with that strategy. Otherwise, you’d better have A LOT of disposable income available to deal with stuff that comes up. No matter how well you screen your tenants, we’re not living in the 1950’s anymore. The culture is different and people do not take care of your house the same way you take care of your house.

    Eventually, you’ll get a tenant that trashes your place. Say goodbye to any “positive cashflow” you were thinking about using to make your car payment.

    A new roof? Say goodbye to any positive cashflow for the next few years. Paint? New lawn? Ka-ching.

    Hope you have a good handyman. Oh, wait… you’ll fix it yourself? Guess what… you’ve just taken on a part time job.

    And what happens if the economy tanks again? What if your property sits vacant or you have to drop the rents dramatically to stay competitive?

    No thanks.

    I think you’ve got the perfect, recession-proof business with this used appliance gig. I think you should invest your money into growing your business. Figure out how to work on the business instead of in the business, then brand it and replicate it in another city.

    • I agree with you that buying a rental property needs to be done with much consideration and caution. I think there are legitimate ways to reduce the risk. Buying a smaller rental house for example greatly reduces one’s risk. They are cheaper, less to maintain and much easier to rent out at a profit. If a person is handy, buying a house that needs some work will bring down the price significantly. It’s definitely not for everyone.

      I used to be an apartment complex manager, and know well the extreme importance one needs to take when taking in tenants. It’s the most important decision when it comes to rentals. I’m going to write an entire post on the issue sometime soon.

      I definitely agree with you about our appliance operation, and we are expanding and investing more and more money into it. When times are good, business is good. When times are bad, business is even better. It’s a great business to be in.

    • Now is a good time to buy rental property as interest rates are down and real estate prices are still pretty good.

      Ryan said screening tenants is extremely important. Many have told me this.

      I understand Sobert’s concerns. I bought a duplex and rent the upstairs unit. It is a fixer upper. The taxes and setup for new tenant and eviction procedures are daunting for me. The repairs take time and money. I can see many things go wrong.

      My spread sheet however shows a 3.5% mortgage can pay the mortgage payment, taxes and repairs with money to spare. Plus my building has already appreciated by 20,000 in the year I have owned it.

      The jury is still out as to whether I have what it takes to be a rental property person. I do not know if I have the gumption for dealing with tenants. Can I resolve tenant disputes, non-paying tenants and finding new tenants? I do not know. I do know that I will find out with little risk as I am only dealing with one tenant.

      If things go well it will be the best $19,000 I have ever spent.

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