“The government should pay people to dig holes in the ground and then fill them up.” -John Maynard Keynes.
Back in the day, people filled jars with cash and buried them in their backyard. You may have heard stories about your great-grandparent’s generation doing this, back before FDIC insurance, when banks weren’t as safe as they are nowadays. Back then, the more holes you’d dug, and the more jars full of cash you buried, the richer you were.
I want to pause here to acknowledge how dumb this sounds. Right now, you’re saying, “Wilsey! Why are you talking about burying money in my backyard! What kind of crap advice is that!” Stick with me because I’m trying to illustrate the most important part of wealth building. If you did nothing more than avoid overspending and debt so you could bury cash in jars in your backyard, you’d eventually become financially independent. It’s as simple as that. I’m not saying you should follow that method; I’m simply saying it would work (just make sure you tell someone where everything’s buried in case you die). I’m going to outline better ways of investing, but I want to start at the baseline for economic success here.
When you think about it, building wealth is a lot like digging a hole, and then burying cash. You save some money, and put it away. The difference is that today, you can make your cash actually work for you. When it comes to becoming wealthy, what really matters is the size of your shovels, meaning your income, how much you save and how fast it grows. The larger your shovels are, the faster you can accumulate wealth.
Notice I’m using the plural form of the word shovel. The more shovels you have working for you, the more holes you can get dug and filled up with jars of cash. There are really three shovels that you can use to grow your wealth, and you’ve got to make sure you’ve got all three working for you.
Shovel 1: How Much Money You Make;
Shovel 2: How Much Money You Save; and
Shovel 3: How Much Your Money Grows
We’re going to examine each of your shovels in greater detail throughout the book, but let’s first be very clear on something. You can’t build wealth if you overspend and are in debt. Sticking with our analogy, you can’t dig a hole to bury your jars of money if you keep filling the holes back in with dirt. We’ll talk about getting out of debt in a bit, but suffice to say, it’s a killer, to be avoided at all costs.
Now, back to our shovels.
SHOVEL 1: HOW MUCH MONEY YOU MAKE
How much you make, and the growth rate of your income is an extremely important component of your wealth creation. Simply put, the more you make, the more you can invest, assuming you’re disciplined. Yes, it’s possible to simply save your way to wealth, but it’s a lot easier if you’re able to save more and more each year. Wherever you are right now in your career, however much you make, you need to focus on growing your income.
Consider two people, Bob and Joe. Both Bob and Joe start their careers making $40,000 per year. Bob is fairly content with his salary, and grows it at the current national average of 2%. Joe’s a bit more ambitious, and grows his salary at a rate of 10% per year. Both are savers, and invest 10% of their income each year, earning the same 5% return.
At the end of 20 years, Bob’s portfolio will have $389,116.77. Joe’s, on the other hand will have $814,840.45. The difference is simply the amount being saved each year, because Joe is growing his income at a faster rate than Bob. He’s got more to save, and ends up with a lot higher net worth.
Now you might be saying, hold on Ward, how can I possibly get my income to grow 10% per year? I’m here to tell you that not only is it possible, but that you MUST set a goal to grow your income 10% per year over the next five years. If that’s not the case, you’re selling yourself short. You need to change your framework and expect to earn significantly more over the course of your career. There’s a TON of employers out there who are desperate to hire competent workers, and will pay for it.
Let me give you an interesting tidbit here. The lower you are on the economic spectrum, the EASIER it is to increase your income. That’s some great news, because that means that anyone in American can improve their situation significantly. Let’s move on from Bob and Joe to an extreme example to illustrate a point.
If you’re currently making minimum wage in Texas, $7.25 an hour, you’re making the equivalent of $15,080 a year. That’s below the poverty line, but that’s not where you need to end up. If you increase your income by 10% a year, you’ll be making a little over $39k in 10 years. In many places in Texas (and America), that’s no longer in poverty. But if you grow your income by 15% per year, you’ll be making a little over $61k in 10 years. 20%? $93k.
This might not happen every single year like clockwork. For instance, you might grow 5% for two years, then get a promotion that will increase your income by 20% in year three, followed by another 5% raise, and then another promotion that increases your salary by 15%. Whatever the path, you should DEMAND of YOURSELF (not demand of others) that you increase your salary by at least 10% per year. You should shoot for higher.
Here’s a few rules to make that happen:
Write Down Your Goals
One of the most important things you can do, right now, is right down your goals for the next year, and also the next five years. Writing down your goals is the first step to knowing what you’re trying to achieve, so you can align your life and actions in order to achieve them. Don’t just think about what your goals are, you need to actually write them down in a journal. There’s something cosmically powerful about the process of transferring goals in your head onto a piece of paper with a pen. I’m not sure why that’s the case, but it’s powerful enough that I’m telling you it’s absolutely crucial to your success.
Make your goals attainable, but make sure that you’re stretching yourself. Your goals should require you to become a better person in order to reach them. Don’t be satisfied with where you are today, you need to aim at where you want to be in the future. Make sure you also set time limits on when you expect to achieve your goals.
By writing down your goals, you’ll naturally start to think about how you want to achieve them. You’ll get clarity into what changes you need to make, what actions you need to take, and what decisions you need to make in order to make a positive change in your life.
When it comes to your income, you should be writing down your expectations. If you want to earn 10% more, write that down, so you can start the process of thinking about how to make that happen. If it’s more (or less) write that down! Just make sure you understand what you’re trying to make happen.
You should write your goals as if they’re definitely going to happen. Don’t write “I hope to make more money next year.” You need to write “I will make 10% more next year than this year” or even better “I will earn a promotion to manager and earn $140,000 by December 31st next year.”
You should write your goals down often, but no less than once per year. A good friend of mine keeps a picture of his written goals as the screenshot of his phone in order to remind himself frequently of them. I think that’s a great idea, and I stole the idea and do it now myself. Whatever your method, make sure you’ve got your goals listed, and review them frequently!
Not that failure to achieve your goals is not a failure in and of itself, but a signal that you need to make some change in order to achieve your goals. If you have not hit a monetary target, maybe you need to share that target with your boss and ask to brainstorm how you can get there. If that’s not feasible in your current company, perhaps you need to make a move to a different company with more growth that offers more opportunity. Either way, the failure to hit your goal is more of a signal that something needs to change in your situation. What’s interesting, however, is that I’ve found I’ve met most of my written goals over time, even my stretch goals that at first seemed slightly unrealistic. It’s crucial, do it today!
You Need More Skills
Self-improvement is crucial in growing your income. You need to be exceptional at your job, and in order to do that, you need to be getting better all the time, both physically and mentally.
You need to learn how to become more productive at work. This means how to evaluate your important tasks, and do them quicker and better. This means you need to learn more about (a) your chosen profession, (b) your industry, and (c) business in general.
Reading is crucial to development. You should be reading multiple books every month in an effort to increase your knowledge. I read or listen to several books a month, as my Amazon and Kindle bills will attest. Reading is crucial to developing new ideas and a broader perspective that helps push my career along. I’ve recently taken to daily vlogging based on what I’m learning each day, to make sure I’ve internalized the knowledge from the books I’m reading.
What if you don’t have money for books? Earlier in my career, I really took advantage of the library to increase my knowledge. For instance, when I first started my law practice, I spent several hours each week in the University of San Diego law library, reading up on estate planning law, and taking advantage of the free materials.
You should also be taking courses you think will help you in your career. For instance, when I became the CFO of HHS, I knew I needed to brush up on my accounting knowledge. I paid $80 for a course at www.coursera.com that was taught by a Wharton Business School Professor on the subject. It gave me invaluable insight into accounting that’s helped me lead our team.
You should also be taking advantage of car time by listening to books, courses, and of course podcasts. Podcasts are free, and there’s so much great information out there that will help you get ahead in life. My favorite (right now) is the GaryVee Show, and I also listen to a variety of other shows. You can also watch so many instructional videos for free, on a variety of subjects, on www.youtube.com. For example, I constantly learn new Microsoft Excel skills just by going on YouTube. It’s that simple, and free!
Whatever method works for you, it’s crucial that you come up with a plan, and work on your skills little by little every day. That time you spend bingeing on Netflix, driving to work listening to music (instead of educational material), or going to happy hour, can be better spent improving yourself.
You Need to Add Value
The key to increasing your income is increasing your value. This is true whether you’re employed in a job or own your own business. You need to view every day as an opportunity to add value in the marketplace, and prove that you deserve to get paid more. Your pay is ultimately a reflection of the value you’re offering to the world. In the short term, it may not be perfectly reflected, and you may be underpaid. Over the long term however, you will be paid more for adding additional value, trust me!
The world is changing rapidly. “Experts” are saying that computers are taking over, and will put people out of work. That’s not true at all. What computers are doing is limiting the usefulness of rote knowledge in the workplace. For instance, people used to have to go through real estate agents in order to access houses on the multiple listing service (MLS). Nowadays, real estate agents have to add value above and beyond giving people access to houses on the MLS. The lesson here is not that computers have taken over, but that the real estate agents who are going to be successful are the ones who are going to add value to their customers in the future.
You need to understand how you can add value first. The better you understand how your company makes money, and always look to help improve profits, the faster you’ll see yourself promoted, and your salary increased rapidly. It’s so common for people to complain about companies making profits, without realizing that they themselves can benefit by helping those same companies earn a higher profit. I want to say that again to reinforce its importance.
No One Can Raise Your Salary but You
A misconception is that your boss or company are responsible for increasing your salary. Nothing could be further from the truth. YOU are responsible for increasing your salary.
Good bosses want to promote talented workers to higher value positions, and pay them accordingly. I know I do. Personally, I’m always looking for great, talented workers, at all levels, and I’m trying to figure out ways to promote them within our company and give them raises. That’s how we can push along our company and bring more value to our customers, and earn higher profits. We’re not looking to underpay talented professionals, because we’ll lose them to our competitors!
If you’re not adding significant value to a company, your boss is motivated by inertia to keep your salary the same, or perhaps raise it by the rate of inflation. If that’s what you’re currently getting, you need to change your expectations. You need to put the onus on yourself. Don’t blame your boss that your salary isn’t increasing, blame yourself! You need to add more value!
Assume that YOU are the one to blame. Assume that YOU haven’t increased your skills, YOU haven’t shown your value, and YOU haven’t warranted a raise. That means YOU are in control, and YOU can go about changing things.
It may not happen overnight, but it will happen, if you take control and responsibility.
You Increase Your Income Through Promotion, Not Annual Raises
Here’s an important fact. If you just rely on your annual raises, you’ll only increase your salary by about 2% per year. Absent a compelling reason to increase a worker’s salary more than that, that’s what an employer will do. Employers are limited by budgets, customer revenue limitations, and shareholder expectations or return. If they gave everyone a 10% raise each year, it’d be impossible to meet those competing expectations!
You could be vulnerable if you’re only getting 2% raises. It means that your employer doesn’t think you’re indispensable. Instead, they believe you’re content with your current situation, and are not looking for additional responsibility that would create additional value. Whether this is actually true, or whether you feel they don’t understand or appreciate your value, is irrelevant. The reality is that the next time there’s a downturn and a position must be eliminated, or the next time they find a “superstar” employee, your job is at-risk. 2% raises should be a wake-up call that you need to make a change.
So, speak with your boss. Find out what you need to do to get more responsibility first, and promotions second. You need to take on additional responsibility in an effort to show value. You need to also talk with your employer about what types of raises are available to you. You need to understand what skills you need to develop in order to reach the next level of promotion.
What if you do that, you talk to your boss, and he tells you there is no next step? Then it’s time to create your own next step, elsewhere. But I know at our company we’re always looking to find room for internal promotion of great people. That’s true of any great company.
You Might Need to Leave
Read this next sentence carefully. You may need to leave your current job to further your career.
Let’s assume you’re doing everything I’ve said above. You’ve written your goal. You’ve increased your skills. You’ve identified how to add value, and you’ve added it. You’ve discussed your career path with your employer. Nothing.
If that’s the case, you need to leave. You need to identify other companies where your skills would be a good fit, you need to reach out to them, get interviewed, and make the jump. Changing jobs is a really easy way of getting a raise. The reality is that most people underestimate the opportunity that is out there. If you’re an “A” player, and you’re hungry to add value, there’s a place out there that will pay you more than you’re currently making. This is especially true the less income you currently make.
A rule of thumb is that if you haven’t increased your income by 10% in two years, you should start putting the feelers out there to move onto somewhere else. For whatever reason, you’re not a good fit for advancement where you’re at. That’s ok, but you need to take the initiative to make a change.
Again, don’t make changes rashly, and always make sure you’re talking with your boss about your prospects for advancement. It could be as simple as your company doesn’t know about your desire for advancement, and is under the assumption you’re content and are not looking for additional responsibility. But if growth doesn’t happen within 2 years, it’s time to move one.
You’re armed now with the pathway to growing your income at a rate that will allow you to become wealthy. If you’re able to increase your income by 10% per year, on average, you’re going to be in a great position for saving and building wealth.
SHOVEL 2: HOW MUCH MONEY YOU SAVE
Making a million dollars a year, but spending a million dollars a year, leaves you with nothing. Put another way, making all the money in the world doesn’t mean anything if you don’t save anything. You might as well be digging your hole, but then filling it back in. There’s no room for any jars of money.
At a minimum, it is CRUCIAL that you’re saving at least 10% of your income, every paycheck, for retirement/wealth building. You should try to save a higher percentage as you make more money, I discuss later how to build up to saving 24% (or more), but that’s the absolute minimum.
How much should you save? Well, you should work towards saving, or giving, a higher amount of your paycheck each year. As you work towards paying down your debt, you’ll already be diverting a large portion of your paycheck from spending anyway, so it will be easy to transition that to saving once your debt is gone. As your income increases over time due to raises, use that as an opportunity to increase what goes into your savings.
Now, before we go any further, and at the risk of being redundant, let’s get very clear on something. You need to get out of debt before you can really save. So that 10% (or hopefully more) of income we just talked about should ALL go to paying off debt in the initial stages of your journey. That means no credit cards, no student loans, no car debt, nothing! Ok, with that said, now we can go back to talking about saving!
The big problem most people have is that even if they make money, they don’t put any of it away. The reality is that unless you tuck money away, you’re not going to have any money working for you. You’re going to spend your whole life working, and then you’ll be broke at the end. Not a pretty picture.
A 2019 study at bankrate.com found that 69% of Americans have less than $1,000 in a savings account. That’s pretty grim. That means that the vast majority of Americans spend every dollar of their paycheck, and perhaps even a little more. Put another way, they’re saving 0% of their income. As I mentioned above, it’s critical that you’re putting at least 10% of your income away each month, and hopefully more.
Why? Well the reasons given vary, but the highest percentage response/excuse among study participants was that they don’t make enough. Do you put yourself in this category? Then let me ask you something. Is there anyone in the world who makes and lives off 10% less than you do? Even in a different country? If so, you can do the same and save 10% of your income.
I’m going to go over each of the excuses cited in the survey, in an effort to show you there’s absolutely NO reason you can’t save at least 10% of your income, make yourself financially stable, and put yourself on a path to becoming a millionaire.
Excuse #1 I’m Living Paycheck to Paycheck
The number one reason cited in the bankrate.com survey for not saving was that the respondents were living paycheck to paycheck. The vast majority of people who say they don’t earn enough to save are full of it. There’s plenty of Americans who’ve never made more than $100,000 per year and have become millionaires. If you commit to putting 10% of your income into savings, and invest that money in something as simple as an S&P 500 Index fund, and do so for 30 years you’re going to be able to retire in style. It’s really that simple. For most of you, this means going to your HR department at work, and asking them to show you how to make a contribution of 10% of your income to your 401k. There’s nothing to it.
Excuse #2 I’m Unemployed
Another large percentage of people said they can’t save because they’re unemployed. True enough. But the great news is that the world has never been easier to find a job you like, that showcases your skills. Sites like www.indeed.com, craigslist, etc. are full of employers who are desperate to hire someone who shows up and tries their best to add value.
The great news is that the less skills you have, the easier it is to find a job. There’s a wide range of companies that are looking to hire hourly staff, and there’s no excuse to remain completely unemployed for very long. As you grow in skills, and earn more, it will take you a little longer to find a new job should you lose yours, so you’ll need to have a proper sized emergency fund to cover your living expenses while searching, which I’ll discuss in more depth below.
Nowadays, you can find a variety of gig jobs, like driving on Uber, doing handyman jobs on Thumbtack, delivering groceries, or just posting for various cleaning/hauling tasks on Facebook/Craigslist. People want to help other people. I remember a gentleman who was out of work in our area and posted on our area Facebook page about his handyman skills. He was filled with odd jobs that people need done, and my wife recommended him to all her friends because he did a good job at our house. Your local church will often put out alerts for parishioners looking for work. You can also do this in order to make extra money in addition to your regular job, which is especially important if you need to pay down debt.
Another option is to create your own business. There’s never been more opportunities with the internet. It’s just not a valid excuse folks! Take what you’re good at and throw it out there on Facebook, LinkedIn, etc. Are you a good bookkeeper? Start a bookkeeping business. Real Estate assistant? Email 100 real estate agents in your area and ask to help them with mundane tasks. Chef? Put it out there on Facebook that you’re doing meal prep. Figure out something that aligns with your interests and skill set, whatever they may be.
Note that there’s some cities in the country with oppressive minimum wage laws that make it impossible for new or lower skill workers to find a job. If the minimum age is $15 per hour, and you’ve only got $7 worth of skills, you’re going to be out of luck. What to do? The best option is to move to a more business friendly city or state so you can find a job that matches your skill set. If that’s not feasible, you’ll need to start your own business, and work as a contractor for customers doing a low skill job for which they won’t be able to afford to pay the minimum wage.
There’s never been an easier time to make money than the present, and it’s getting better all the time. Often all that’s necessary is for you to change your attitude, and see it.
Excuse #3 The Cost of Living is High in My Area
Is the cost of living high in your area? Move. It’s that simple. If you live in New York City, you might well be saying, “Of course I can’t save, my rent’s 50% of my income.” Well, no kidding. Certain areas of the country cost extremely high amounts of money. That’s not a good place to build your life and build wealth. You need to move. Got family in the area? You need to move somewhere where you can drive back a couple of times a year, but you need to move. You can’t allow the excuse of not wanting to move because of family/friends to cause you to be broke all your life and to be a burden on your kids and society. We moved from California to Texas in 2017, and our financial future has become much brighter as a result. Given the recent deterioration of conditions in California, combined with even higher housing prices, I can’t imagine how much worse our financial position would be if we still lived there.
The media will tell you that the middle class can’t ever afford to buy a home or to save. That’s just not true. There are places in the country where you can get a great home for less than $200,000 per year. You can afford that on a salary of $67,000 per year, and there’s plenty of jobs in those areas that pay that for a decent worker who tries to add value to their employer. Those communities exist all over Texas, where I live, and plenty of other states as well.
Excuse #4 I Have Too Much Debt
You can’t have consumer debt if you want to be wealthy, it’s that simple. By consumer debt, I mean things like credit cards, student loans, auto loans, they’re all bad. So how do you get out of debt?
You need to take 10% of your income, the minimum amount I’m telling you to save, and use it to pay off your debt. If you have a lot of debt, you need to save a larger percent of your income to attack your debt. You may need to also take on a second job in order to pay down your debt as well. For a time, you may need to work an extra 8 hours a day and direct all that money at your debt to get yourself back to even. Debt is a killer: financially, emotionally, and spiritually, and you need to get yourself clear of it.
In order to do this, you need to get your spending in line to live on less than you make. Excessive spending usually comes from (1) spending too much on housing; (2) spending too much on cars; (3) using credit cards; and (4) spending too much on eating.
With respect to housing, it’s important to spend less than 25% of your income on housing. If you need to sell a home that is too expensive, sell it. If you need to find a smaller home/apartment to rent, do that. Don’t hold yourself back by living in more houses than you can afford.
You can’t have car debt if you want to get ahead and become a millionaire. If you have a car loan, you need to keep that car until it’s paid off and you can save for another one. I don’t care if the transmission breaks. Fix it (cheaply), don’t buy a new car on debt, it’s a killer.
If you’re in debt, you need to be spending a lot less on food as well. First of all, that means no eating in a restaurant. If you really need to take your kids out, go to McDonald’s and order off the dollar menu. We’ve fed all four of our kids for less than $10 there. You should also look for cheaper grocery options, and purchase only food that you need to cook for yourself, rather than pre-made items. It’s cheaper, and healthier as well.
If you have less than a million-dollar net worth, there’s no way you should have a credit card. You can’t afford to buy items on credit, incur interest charges, and expect to get ahead. You need to cut those things up immediately. If you’re worried about emergencies, create a separate bank account, and get a couple of thousand dollars into it as quickly as possible by selling stuff, working on the weekends, whatever.
The reality is that you spend more and buy things you don’t need with credit cards. This is because you don’t feel the immediate pain of spending the money. The best way of doing things is to pull out actual cash to spend on things, because it hurts more to see that cash go. For items that can’t be paid in cash, use a debit card, so you know the money leaves your bank account immediately. Credit cards are not the answer.
You’re not winning by getting your “points” or “cash back”, don’t fool yourself. If you’re a millionaire, and have sufficient extra cash to bail yourself out, you can try the whole points game. Maybe you are indeed the 1 in a 100 person who’s discipled enough to win there. But the credit cards make their money (and lots of it) on the 99 other fools who are getting sucked into their game. Don’t do it!
There’s plenty of other items, such as clothing, phone bills, cable, etc. that you may need to cut to get out of debt. You’ll find that you can cut these back substantially and live just as happily. Do whatever you need to do to reduce your spending by at least 10% in order to get out of debt, it’s critical in your journey to financial stability and independence.
Excuse # 5: I Forget to Put Money into Savings
This is an interesting excuse, but it points to a much larger problem. When people say they forget to put their money into savings, it really means they spend their paycheck, and save what’s left over. Guess what? If you behave that way NOTHING will be left over. The solution is to reverse the process. You need to save first, and then feel free to spend whatever’s left over.
In order to not “forget” to save, you need to make it an automatic process. Luckily, today there’s a ton of online solutions that make this very simple. My suggestion is that you form a separate bank account, in a separate bank, in order to segregate your savings from your spending. Online banks like simple.com, ally.com, and varo.com offer free checking accounts and are perfect for this type of automatic savings process. You’ll just set it up so that 10% of your paycheck automatically gets whisked away every two weeks.
Initially, you’ll use this account to pay down any debt you have. These online banks offer free debit cards that will help in this process. You can set up automatic payments to pay down whatever debts you have outstanding. I personally like the Dave Ramsey “Debt Snowball” method where you pay down the smallest debt first, and then attack larger debts as the small ones are paid off. That method has worked for thousands of people, including my wife and I, and we can’t think of anything better. Read a Dave Ramsey book, and follow his method to the letter!
For anyone who’s thinking 10% is too much, you can start with 1%, and then add 1% each paycheck until you get to 10%. You’ll find you barely notice the difference. Once you get to 10%, try to keep going and save even more each month, until you eventually get to 24% (or more). You should also be putting any bonus you get towards debt, rather than Christmas gifts, toys, rewards, etc.
Excuse #6: I Don’t Know How to Budget
Budgeting is important, but it’s not as complex as most people think. Again, I’m going to direct you to Dave Ramsey, who’s done a lot of great work in this area. To tell the truth, we’re not the greatest budgeters in the world. But because we’re out of debt, and put our savings first, it doesn’t truthfully matter that much.
One great lesson we’ve learned is to pull cash out of the bank each paycheck for the bulk of our spending. This forces us to think twice about purchases, and also lets us know when it’s time to stop spending. We put our cash in various categories like food, entertainment, clothing, etc., and it’s really been helpful in forcing us to control our spending.
Excuse #7: My Savings Rate Earns a Low Interest Rate
Yes, savings rates are low. Banks pay out less than 1%, even in savings and money market accounts. But you’re not going to become a millionaire by saving nothing, that’s just silly. Plus, a portion of your savings isn’t designed to grow, because it’s there for emergencies. You need to build up 3-6 months of living expenses just to make sure you’ll be okay if you lose a job.
Your emergency savings account is fine to earn nothing. Earning interest means you’re also putting your money at some sort of risk. You want to make sure your emergency savings is in something that’s extremely low risk, so that you don’t lose it, or have it go down in value at the exact time you need to pull it out.
This means that you’ll need to leave it in a bank, where it’s FDIC insured against the bank going out of business. A US bank, backed by the federal government, is as close to risk free as you can possibly get, so it makes sense to house it there. Even if it gets less than 1%, you’ll still be in a great position.
Once you have a full emergency savings fund, you’ll need to invest in either stocks or real estate, as described below, and you’ll earn much more, over time, than the miniscule amounts offered by savings accounts. A savings account is simply a place to hold cash for a rainy day.
Summary
To bring it all together, there’s no excuse for not saving. Stop believing the media lies that you can’t get ahead, it’s not true. Get out of debt, set aside part of your income to investment, and you’ll be well on your way to becoming a millionaire. It really is that simple, and anyone can do it.
SHOVEL 3: HOW MUCH YOUR MONEY GROWS
When people used to bury money in the jars in their backyard, there was one major problem. They could increase the amount they buried, by making more and saving more, but they couldn’t grow their money. If anything, they would be losing money safely to inflation. You need to invest your money in order to have it grow, and provide for you.
You’re in a different world. You have the opportunity to EASILY grow your money through stocks at safe financial institutions when you’re beginning your journey, as well as later through real estate and other potential investments. I’m going to give you some general guidelines here for investing, which we’ll follow up on in later chapters with more detail.
The first thing to consider is that you actually need to invest, and cannot rely on savings accounts or CDs to meet your needs. I’ve met a lot of people over the years who are afraid of the “stock market” or don’t want to own investment real estate and “plunge toilets” and use that as an excuse to justify not investing (or saving) at all. This is silly. There are a wide variety of investment types out there, and you need to invest in something in order to generate returns necessary to meet your needs in retirement.
The first thing to think about with investing is the distinction between growth and income. Growth is the increase in value of an investment over time. For instance, the value of a stock may jump from $30 to $40, such that if you sold it, you’d earn a $10 profit. Income is the cashflow an investment provides. For instance, perhaps net of expenses your real estate rental property might provide you with $1,000 per month of cash flow.
Both growth and income are important, but it’s crucial to understand and plan for them as part of your ultimate plan. Generally speaking, your goal from investing is to provide for your living expenses with income generated from your investments. The growth of your investments will help you generate more income over time.
Let’s unpack that. You want income so you don’t need to sell assets to generate cash. On one hand, when you sell a stock, you generate cash, which can be spent. However, doing so will eliminate the asset that generated the cash for you to spend. It’s kind of like killing the goose that laid the golden egg.
A much better strategy is to depend on your assets producing income for you to spend. Examples would be rental income or stock dividends. This cash flow will be produced over and over, allowing you to receive ongoing income over the course of your lifetime.
That’s an overview of getting rich. Make more money, save money, and watch it grow. Pretty easy right? But, before you can even start the process, you must first escape the trap that ensnares the VAST majority of Americans…debt.