How to Get Rich
« on: September 14, 2021, 01:27:03 PM »
How to Get Rich

So, I got your attention!

How would you do it? Buy gold, Bitcoin, NFTs, a lottery ticket?  Might work, but a slow and steady approach has a better chance of success. And what sort of financially rich – rich enough to not worry about money, or rich enough to sail the world? Either way, here are a few tips that will help you reach your goal.

Save, save, save.

If you do not have enough income, you cannot possibly save.  Income also allows you to manage your expenses, keeping outflows less than inflows, i.e., living below your means. Make a budget and follow it. Your budget will help you understand your cashflows, and help you save. Many apps are available to help, but a simple spreadsheet is all that is needed. Likewise, a personal balance sheet listing all your assets and liabilities, will show your current financial condition.

Pay yourself first.

Pay yourself first is a time-tested method for accumulating wealth, and it is simple to setup. Every pay period have money automatically withdrawn from your check to be deposited in a special savings account, and/or into a retirement account before any other bills are paid. Since its automatic, you do not have a chance to use those funds on any other spending.  And, thanks to the power of compounding, it does not take long before you will notice how your savings have grown.  As an example, if you save $100 per month for 50 years and increase the $100 each year by 2% to account for inflation, and you grow your money at 8% for 50 years, you will have $1,000,000!

Invest in yourself.

Warren Buffett has said “Invest in yourself. Your knowledge is the engine of your wealth.” No truer words have been spoken.  An investment in yourself will help you succeed. Knowledge is power, and it will help you work better. If you do not know, find out. Listen to smart people. Believe that you can be more than you are today. The harder you work to learn to improve yourself, the more future benefits will follow. Perhaps you will even start your own business.

Invest in the stock market.

The long-term return of the S&P 500 US stock market index for the past 30 years is approximately 9%. Mind you, the worst 1 year return over that period was -37% (2008), and the best 31.50% (2019),   showing the importance that long term less risky investing is the key to building long term wealth. Smart investing requires keeping goals in mind, utilizing diversification, understanding risk, and avoiding get rich quick schemes. Avoid trying to hit the home run, and rather aim for consistent singles. Read and study financial press. Get sound advice - finding a good, licensed advisor can be as simple as checking with a trusted friend or family member. Always keep an eye on investment expenses.

Invest for multiple income flows.

Diversification of income is as important as diversification of assets; luckily, they often go hand-in-hand. Examples of multiple income sources include your salary, your spouse’s salary; investment income including dividends, interest, capital gain income; rental property income, and royalty income.  Since each type of income is unrelated to the other, this diversification helps to reduce income risk. And, since these all are different sources of income, chances of success increase too.

Understand taxes!

The U.S. income tax code is more than 70,000 pages long.  Some believe that no one has read it front to back. Regardless, a general understanding of how income is taxed, and at what rate depending on the type of income, is essential for accumulating wealth. As taxpayers, we attempt to legally defer income recognition to delay taxation, we shelter income in various retirement accounts, we carefully gather and report legal offsets and deductions. Careful record keeping is necessary to pay the correct tax since many people pay more federal income tax than necessary because they misunderstand tax laws and fail to keep good records. Note: tax avoidance is perfectly legal in contrast to tax evasion which the IRS defines as the failure to pay or the deliberate underpayment of taxes.  So, when in doubt, turn to an expert such as a CPA.

And here are a few wise considerations when seeking your riches:

Honesty: “Whoever is careless with the truth in small matters cannot be trusted with important matters.”
― Albert Einstein

Charity: “If you’re in the luckiest one percent of humanity, you owe it to the rest of humanity to think about the other 99 percent.”
― Warren Buffett

Modesty: “There is no limit to the amount of good you can do if you don't care who gets the credit.”
― Ronald Reagan

Richness: “No man is rich enough to buy back his past.”
― Oscar Wilde

Good luck!