This isn’t what I normally would write about. Typically I do product reviews and lifestyle blog posts, and not about how to get rich. This kind of goes along with the lifestyle blogs, but in a grander scale. Most people who don’t have a lot of money want more, with the idea that it will solve their problems. The more rich a person is the less problems that person has is the mindset.
Truth be told, typically being rich just escalates their issues. The same issues that poor people have when they’re poor they have when they become rich, and here is why. Poor and rich is not a matter of money. It is a matter of habit… Don’t close the browser just yet.
Now, you may be thinking: No way is being rich and poor a habit. But hear me out. A poor person who happens to win the lottery, typically is not rich for very long before they have blown all of their winnings and gone back to that old lifestyle and are broke again. The sports stars who never learned good financial habits and earn millions of dollars per game get injured and are broke in a few years because they do the same habits that they always did. Rich and poor are habitual, not a matter of money, and unfortunately some readers are already turned off at reading that.
Now the good news are that habits can be changed!
At this point I need to mention, that this article is meant for informational purposes. Investments are risky and should be done with the idea of being able to handle a 100% loss of whatever you put in. If you want to know how to get rich, you have to put in some effort and we are going to do some research.
Mind Over Matter
I grew up with a great family. My parents worked hard for what we had. We didn’t have a wealthy family, but we were comfortable. I remember watching my dad get up early every day and go to work in the cold, heat, or whether he was sick or not. His work ethic was something that I still strive for in my daily work life.
My parents lead by example in their life on how to work for a living and that is a great start, but it is just a start. When we are making money and it isn’t working for us there is nothing to show for it… and that is the problem.
It turns out that it may be a mindset issue and not actually a monetary issue. Sure, the amount of money you have to work will will make the process faster or slower. But the process is still the same. And people who make $300,000 a year can still live paycheck to paycheck and feel just as broke as someone making $30,000 a year. It’s called economies of scale.
Working For A Living
The rich don’t have to work for a living. They work because they want to. They get bored or have other reasons to keep working. The poor and middle class have to work to keep the bills paid because they feel there is no other option. What if someone said there was another option?
What if you were able to retire before you hit age 50 and do whatever you wanted? Some people, (most people) will scoff and say its impossible, albeit a nice idea, and keep working. Those few who think that it is more than just a dream and actually embrace the idea adopt a change in mindset and start working toward that goal achieve success no matter where they started.
That is truly working for a living.
Your income is a tool but its value is much greater than you are probably utilizing at the moment. Most people go to work for 40–80 hours a week for a pay check and put most of it towards bills and expenses and put the rest into cars, or other items that go down in value or into a low interest savings account. You are working hard for your money, but your money is not working for you.
Job Security Is A Lie
Times have changed. The days of working for forty or fifty years at a company and collecting a pension from said company for the rest of your life and having them take care of you is over. That doesn’t happen anymore. Many boomers are under the impression that their pensions are going to be there and companies are changing policies under their noses right before retirement.
The job market changes quickly and companies are fast to adapt to ensure they can keep up. Often times that means cutting jobs that are obsolete. As technology advances some of these often times may include the aging workforce as well, but doesn’t necessarily mean it will.
What it does mean is that companies are adapting to changes and the workforce needs to adapt also. Workers depending on a pension or social security to retire on are living a fools dream.
In my state, employment is at will. That means I can be fired for any reason or no reason, but I can also quit for any reason or no reason. There is no employment contract. That is a good thing, but can also be scary… especially when living paycheck to paycheck.
Break The Cycle
The question becomes how do you get rich? You have to stop working for your money and make your money work for you. We have to earn more, make more than we spend. Of course, that makes sense. But we are unfortunately limited by our income, employment and time. How exactly can we make more without spending more time.
The answer is making your money make more money.
Most people put their savings in low yield, or high yield savings accounts, which average up to 2% returns per year. That’s not much. Certainly it is better than nothing at all, but you’re still 2% below inflation.
I started off listening to one of the very popular radio hosts out there saying credit cards are bad, and you need to budget to pay off all of your debt. I think that is wise. But that is for beginners and very slow moving. I think there is so much more we can do and a lot faster. Imagine if we started making a ton of money really fast, then paid off the crappy debt, and kept building wealth.
It would be incredible. There are caveats, obviously so each person’s situation may be a little different and you need to take yours into consideration. Here is what I did…
I started slow, because I didn’t know any better and was learning. Using my small starting income I invested what little I had at 5% into my 401k. I chose mutual funds that had a track record of 10–15% average growth over a 10–15 year period or longer if possible and invested in at least 4 or 5 different fund types. I was fairly diversified at that point. I figured that I would keep from being hit from a crash.
Using that same idea when I quit I moved it into my IRA and invested in the same type of mutual funds with the same track records but just a different vehicle. The growth I have gotten on some of these mutual funds is upwards of 25% compounding. Its pretty amazing… however there is an issue. It is not fault tolerant.
So in the event of a market crash I could lose almost everything and if I am depending on those funds for my income during that time that poses a pretty big risk.
I decided to look into other opportunities outside of mutual funds and began looking to real estate, private company stock (pre-IPO), and ETFs to diversify a little more. Unfortunately my income had taken a toll from my personal choices and credit card debt that had racked up so I wasn’t able to put in as much at one time that I wanted to, so I had to play the waiting game.
The goal was to create cash flow at this point. In order to do that I needed to set money aside. When I set it aside for a bigger investment I wanted it to grow so I decided to look at an easy way for it to be invested that it would grow. I decided to check out Betterment. I used betterment because it had a great track record for growth under its algorithm of automated adjustments in its ETFs allowing for highest returns during market fluctuations. Overall its simple, fast and trustworthy.
Putting Your Money To Work
So you may say that you don’t have any money to start putting aside. Well, you have to find it. Plain and simple. You have to start somewhere. Use a tool such as YNAB; which is a budgeting app that helps you see where you are spending your money and allows you to give every dollar a job (read our review on YNAB). When people tell me they don’t have enough money to put something aside, they likely are not trying hard enough or simply are using it somewhere else.
Use this to budget some money to put away every month to get started, even if you don’t have any. You have to take care of yourself, and doing this will force you to think outside of the box. If you have to figure out how to come up with $100 in a month, you will come up with $100. It’s not that much money in the grand scheme of things.
And putting that $100 into an investment that is growing at 10–12% (25% in my betterment portfolio case) makes it completely worth the extra hassle. This growth and betterment profile is just a holding tank, while we build up the funds for bigger and better assets.
At this point I am dumping anything I can into this portfolio to allow exponential growth. Whenever there is news that causes the DOW, S&P 500, or NASDAQ to drop a several percentage points I make it a habit to add money to this account. Money is made when you buy, certainly not when you sell. You don’t want to buy full price all the time. Buy especially when stocks go on sale.
While down turns can take a while to recover, it is the best time to buy. So when we are looking for returns we buy low. We are doing this to build up enough to buy some assets that will bring in monthly recurring income.
AKA: PASSIVE INCOME!
Passive Income Is Key
We want to establish a monthly positive cash flow, and in order to do that we need assets that can provide that. It will take a few assets to get going.
Think back to physics class, you learned that an object at rest tends to stay at rest. But and object in motion tends to stay in motion… Well the same is true with income.
Getting started is the hard part, once you are moving your income forward you can roll that income into your next asset and that monthly passive income goes up making it easier and faster to move forward.
You saved up 50,000 over a 5 year or less period for your initial investment. (40k + growth in your betterment account) and during that time you did your research in the real estate market and found a good buy for a single family home in the area that is under valued a bit that the seller is looking to get out of and may need a little work. You have done the research and know that rent in the area is going for roughly $1100 a month which would cover the mortgage and and give you $300–400 cash flow per month because of what you put down after expenses and planning for future repairs (again you have done your research on how to be a good real estate investor). That’s $3600 extra a year.
Drop that $3600 into betterment or some other growth account along with continued savings rolling up to a second rental property to repeat the process. The second one should happen in a 3.5 year time frame or faster because of the additional $3600 a year additional income.
You now have your two or three rentals making each between $300 and $500 a month extra, maybe more.
The properties have increased in value. You decided to take advantage of appreciation on the first two and sell them and make an additional $40k on each.
things are no longer hopeless and that extra $10,000 a month in passive income is not a fairy tale
You add that additional $80k to your $100k initial investment on those two properties and go to buy a multi-family building with up to 4 or 5 apartments.
You rent these out for $1100 each and it brings in $5500 a month now in rent minus expenses. You are looking at approximately $3500 a month extra in passive income. Your ball is now moving. That’s $42000 a year. You should be utilizing an LLC or some type of business to manage these properties by this point.
Why this method?
The reason we look at this method is because it allows us to gets us a large monthly cash flow and sets us up for income replacement quickly. Only a few years and we can start replacing our regular income.
Why not just put our money in the stock market?
You can… this is another diversification method to allow for additional income, and also allows for better tax advantages overall than investing in stock because you can take expenses off your taxes if its for business purposes if you have your business set up right (seek professional tax advice!).
Its So Risky!
It is risky. But so is anything you put your money in. So is the job market. Just about anything you do is risky. The greater the risk, the greater the reward….
But if you do your research and properly educate yourself prior to jumping into the market you reduce the amount of risk that each property holds. Knowing the location and how to manage the property effectively is a key element.
How can I educate myself?
Read! Read! Read! There are plenty of people that have done the research for you. You can get a book like How to Invest in Real Estate or even Real Estate Investing for Dummies. The latter is probably a little better organized and has more thorough information presented and the former probably reads a bit easier. You can also read books like Rich Dad, Poor Dad for ideas and inspiration on how to handle your money and start getting on the right path.
Education is key, but formal schooling isn’t necessarily where it is at. Practical financial education is going to be needed. You are going to have to do something to change your mindset and get yourself the education you need. If you need to help convince your family. Try a family game night and play the Cash Flow Board Game and get out of the rat race, it will help show the players what is possible by making small changes and the big long term effects.
Perhaps the best way would be to check out a local conference and sign up for a two or three day seminar. It may cost up to a few thousand dollars, but the knowledge you gain may set you on the right path for life. Look into the information presented prior to signing up.
Of course you don’t have to spend all this money to start making money. You can start by putting money aside now. Throw it in your betterment account and watch it start growing. Make an effort to not spend extra money on frivolous goods and put that money into the account and see how quickly you can reach $1k, $3k, $5k. It doesn’t take long at all.
When you start getting those bigger numbers, and that ball starts moving… things are no longer hopeless and that extra $10,000 a month in passive income is not a fairy tale. You are now on your way to becoming rich! Keep the momentum going and it doesn’t have to stop at $10k a month.
What would you do with an extra $30k a month?
Once this momentum is up you will likely find yourself having a different problem. Too much money. The rich often give money away for various reasons.
- Tax benefits.
- They don’t know what else to do with it.
- What they give they shall receive.
But another think you can do once you start making over $200k-300k a year is investing in private businesses, buying franchises and really start expanding in fun opportunities to grow your wealth in other ways that can benefit other people. Look for ways to give back locally with businesses that can help your community first then move on to other businesses outside of your area. As your business takes off, it will make you more money to reinvest in itself, and you. It becomes a self perpetuating machine and the growth of the rich continues on.
If you think that being rich is too much work, or not possible. You are simply selling yourself short. Go out and make something happen.