OK, folks, let’s continue the conversation about wealth and how to obtain it. If you did not have the chance to read the first part of this discussion, please see this post.
But first, do you know the answer to a question: Can a “9 to 5” job make you wealthy?
I have an answer for you below.
If you read this post, I assume you have been reading many others. Spend just 30 minutes of your day reviewing 5–6 different finance blogs. You will feel like your head is spinning, and you’ll probably believe that you need at least 20 years of advanced economics and calculus even to begin to understand the information required to achieve financial freedom.
But you don’t… People like to make it complicated because it helps them sell things.
Financial freedom (which is what I’m assuming you’re after) is simple. The wealth itself means nothing if you don’t have the freedom to do whatever you love to do. Financial freedom should bring you comfort and security. So, your goal should not be wealth itself, but the economic freedom that would allow you to make your own choices and afford them.
Financial independence requires only three things:
- A basic understanding of what happens when money compounds
- A resolution to save and invest regularly
- The discipline to follow through.
There are a few approaches (or call them the rules) that will help you to achieve your goal.
However, I would like to pause for a moment before I proceed.
If you think having enough money will make you happy, you are dead wrong. So, let’s discuss a different type of wealth, I bet, something you have never considered.
When we speak of being rich, we usually mean financial wealth: having lots of money – i.e., all the money you want and/or need.
But there are other ways of being rich – three of which can improve your life immensely:
- You can be rich in relationships: with friends, family, and the community in general.
- You can be rich in health: having a robust immune system, strong muscles, flexible joints, and abundant energy.
- You can be rich mentally: knowledgeable and skillful, but also curious, excited, and always eager to learn more.
All the types of wealth mentioned above are indispensable for making you happy. It's as cliché as they come, but it's true: Money doesn't buy happiness.
Just go back to your own history and recall when you had the first kiss with a girl, when you met your future wife, when you explored the world and its wonders, when you lost yourself in a book, when you hiked in the forest…
These moments are what make your life worth living. Not money.
We invest, hopefully not because we think we'll magically be happier, but because we know it'll provide us the freedom and security to do what we want, to live a life of our choosing.
Warren Buffett still lives in the house he bought in 1958 for $31,500. When asked why he hasn't upgraded, he said, "I'm happy there. I'd move if I thought I'd be happier somewhere else." The freedom is his.
Now, let’s continue our journey and discuss several rules that lead to creating wealth.
Rule #1: Accept Minimalism and Avoid Consumerism
When most people hear the word “Minimalist,” they immediately envision an empty 300 sq ft apartment with two pieces of furniture and no dishes.
But this is not what minimalism truly is…
Only spend money on the things that you need or that bring real value to your life.
The guy I know drives a BMW sedan ($90k) and lives in a $1 million house, whom I would consider a minimalist.
How is this possible?
Because he only spends money on the things that bring value to his life. He loves cars and savors driving their BMW to their office. (He has tried convincing me to buy a better car than a Subaru, but I have different priorities in life, and driving a Subaru still keeps me happy, so why should I overspend?)
His house is located close to his job, and the schools for kids are the best in the area. So, he thinks that the cost of the house is justified. He doesn’t fill his house with crap from QVC or go on random Walmart shopping sprees. He has intentionally spent his money in a way that makes him happy, WITHOUT spending it on things that bring no value to his life.
This is the single most important financial principle you can ever learn. Before you make any purchase, ask yourself two questions.
- Do I really need this?
- Will it improve the quality of my life in the long term?
For example, dropping $300 on one of those stupid hover boards will do little more than drain your bank account and leave you with bloody knees.
However, investing $2,000 in the most comfortable mattress you can find will improve your sleep quality and have a positive impact on your life for the next decade.
Do you see the difference?
To achieve financial freedom, it is essential to avoid consumerism. Don’t buy things “just because”. Ensure every purchase serves a purpose, and you will do just fine.
Rule #2: YOU Are the Most Valuable Asset
Invest in as much of yourself as you can. You are your own biggest asset by far. ~Warren Buffett
I have been asked a lot of questions like “I have $500. How can I invest it?” or “I want to become wealthy. Where do I start?” or “I have $1,000 and I am a student. How to invest it better: in stocks or funds?”
My answer is always the same… Start educating yourself. Spend those $500 to get training that will bring valuable knowledge. To start investing, you need education. It’s not just two days of training. I have been investing for over 23 years, and I continue to learn something new every day.
When you invest in yourself by buying books, hiring a coach, attending seminars, learning new skills, or other forms of personal development, you are making an investment that will have a 100–1,000% return over the course of your life.
If you spend $10 on a book and you learn just ONE thing that helps you improve the quality of your work (your income) by 15% each year, and you earn $50,000 a year now, in just 5 years you will double it ($100,568)!
I recall buying a book about Real Estate Investment. It has turned my naïve perceptions about paying off the mortgage faster upside down. It has helped me purchase five investment properties without incurring significant expenses. This is what you should look for: valuable knowledge!
Learn how to make more money and bring more value to your business or company.
Learn how to manage money better and automatically have your income go to work for you.
Learn how to manage your time and energy more effectively so that you can earn more money.
Learn, learn, learn, and your life will change for the better. I promise!
Rule #3: Pay Yourself First and Do It Automatically
I came across this text in one of the recent articles that compelled me to write this blog. With a bit of editing, here it is:
“If you want to become financially successful, then you must STOP paying other people first. You should not forget about yourself!
When most people receive their paycheck every other week, ~30% of it goes to their landlord, around 20% to the local grocery store, and around 30% to various bars, stores, and e-commerce sites. Their bills and obligations consume the remaining 20%.
This is the WRONG way to do things. If possible, could you pay yourself first?
As soon as you get a paycheck, set up your accounts so that 10% of your income is AUTOMATICALLY deposited into a long-term retirement account (IRA, 401k, etc.) or personal investment account (the money you will use for books, trainings, seminars, etc.) or save for future investment deals.
Then live off the rest.
This will force you to cut costs where they don’t matter and prioritize your FUTURE self over your PRESENT pleasure.
It isn’t easy to implement, but it’s essential to your financial success.
When you have enough cash that will cover your emergency needs (at least 6 months of your living expenses), invest the rest in education, real estate, or the stock market, money should make money – don’t allow your cash to be lazy!”
It cannot be said better!
Rule #4: Money should make more money
Any money you make should NOT be idle. We now live in a time when having a pile of idle cash is looked upon favorably. Yet, often we let our money be lazy while we work our heads off trying to earn it. Money earned through hard work should be expected to yield the same results.
Here is a story from the Bible. A parable is referred to as the Parable of the Talents. It is located in Matthew 25:14-30 for those wanting to read it in full. Whether religious or not, it teaches the same principle.
Essentially, a master of three men was going away, and he entrusted them with a portion of his funds. Two of the men invested the money and earned a positive return. The last man in fear of his master buried it. He preserved his master's capital but did not invest it.
The master was highly displeased. He rewarded those who invested the money and punished those who did not.
The only reason to save money is that you are going to invest it into an asset in the future. Keeping your cash in the bank with interest rates below 1% is ridiculous. It won’t help you reach your goal of financial independence.
In one of my articles in the Investment Category, I mentioned that I have withdrawn $20,000 from my savings account and invested it in the stock market. Within a few months, I had around 9% gain. Compare it to the return of any savings account with a 0.06% yearly yield. Some foreign countries’ banks have a negative yield.
It doesn’t matter how many books you read, podcasts you listen to, or motivational videos you watch. You will lose every time because if you have a small savings account, which will not allow you to buy more assets, that will further build your cash reserve to buy more assets, and so on… If you invest $500 and I invest $5,000, with a 7% return, you will make $35, while I will make ten times more ($350) with the same investment.
You will be forced to work inside someone else’s assets. This is commonly referred to as a 9-to-5 job.
If you’re not buying assets, then you are not playing the game of Capitalism. You are inside someone else’s game.
So, what to do if you still have a 9-to-5 job only?
Rule #5: Passive Income is Worth 10X Working Income
What I have learned over the years is that, at all costs, you should start building passive income assets as soon as possible.
Whether you sell anything on eBay or Amazon, run an eCommerce business and run paid ads automatically, or purchase a single-family home and hire someone to manage and rent it out, you need to have at least 1 (preferably more) streams of passive income that generate you money whether you are working or not.
For me, the real estate was a game-changer. Some part-time work building and managing the computer network in a medical office was still a game-changer. Part-time electrical work, painting jobs, and fixing failed computers… all of it was a game-changer because I was earning extra money that could be invested to make more money.
Imagine how your life would change if you earned $ 2,000-$ 3,000 a month without clocking in or doing any work daily (i.e., renting out your property).
I can tell you from personal experience that building passive income is the #1 way to achieve lasting financial success. I would not be able to become financially independent without passive income (mainly from real estate).
Pick an income stream and pursue it tirelessly until passive assets pay all of your basic living expenses.
Rule #6: Understand Your Problem
As one fellow writer has mentioned, there are two types of people in this world.
- Those who have an INCOME problem
- Those who have a SPENDING problem
If you are earning less than $70,000 (or $100,000, depending on where you live – I am referring to the U.S.), then you have an income problem. Until you hit these milestones, it isn’t easy to live a financially secure life.
You don’t have enough funds to cover your living expenses AND to put aside 10% of your after-tax money.
However, if you are earning $70,000+ a year and don’t have any money leftover in your savings or retirement fund, you have a SPENDING problem. You should cut your unneeded expenses and save the difference.
This is an important distinction!
I’ve seen people who did not even have any freelance jobs in mind to fix their financial problems. Yes, it will take up your free time for a while. Yes, it requires your efforts. But you know why you do it, right?
By starting a side freelancing, you can earn an extra $10,000-$20,000 a year and enjoy many more things.
Conversely, I’ve seen guys making $500,000 a year spending every last cent and constantly working to earn more money (while increasing their expenses with their income). By downsizing their lifestyle, they could easily save or invest $100,000+ per year and retire within a decade.
Do you see the difference?
If you are attempting to achieve financial freedom, you must first identify whether you have an income or spending problem and then take action to rectify the situation.
Never confuse one for the other, or you will get caught in a game of constantly trying to earn more money or cut more costs without ever achieving the freedom you desire.
Follow those six rules, and you will be well on your way to financial independence.
DISCLAIMER.
This site is for informational and educational purposes only and should not be construed to constitute professional advice. Nothing included here shall be a solicitation or endorsement. I am not affiliated with, nor do I receive compensation from, any company. I will utilize my extensive notes from various articles. If I did not specify the source, I would like to extend my gratitude to all the authors whose thoughts I have incorporated into these pages.
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