It can be difficult to get rich without the luck, preparation and timing but itâs even harder to sustain it.
With broke lottery winners and first million dollar paycheck athlete bombers, sadly thereâs little to no chance someone can sustain a million+ paycheck for the rest of their careers, let alone a year without financial literacy.
Luckily these days you can get rich through multiple sources doing less work not just through a generic paycheck that steals most of your money and stashes it into Uncle Samâs stuffed pockets.
To be clear, rich isnât solely the level you hit in your bank account. Itâs your level of fulfillment, security, happiness and value you provide to yourself. No amount of money will replace your mindset. Itâs an important distinction to make especially once money overwhelms your life and relationships.
If you want to dramatically increase your chances for success without doing much additional work, investing is surely your way to go. 99% of millionaires and billionaires are invested in the stock market because it is the best way to preserve capital, beat inflation, take part in unbelievable gains from our favorite companies, help save for short and long-term goals, do less work, have more time and most importantly, not be dependent on 1 income source.
No wonder the top 10% also have 8â10 incomes sources. They reap the rewards of ultimate financial freedom which in my opinion includes: not relying 1 company/source to provide for your wellbeing, safety cushion in case something goes bust or a bat virus comes our way and more sources acts as a financial buffer to all of them.
Similarly to an index fund, when you invest in a basket of diversified securities or simply track a broader index and your gains mirror it, if 1 company goes bust, the other 99 in the Dow Jones will supplement it.
Having a peace of mind is key to life. If you have to sacrifice your time for a physical laborious job, you are toast.
Investor Secrets
If you want to find out what the top investors in the world do, look no further than to books at any bookstore, the internet and all available resources that are completely free. Yet despite all these sources, why are there only a select few, most notably Buffett and Lynch that have amassed billions through the market?
They share all their secrets.
The problem is that they seem too good to be true.
The same deal with starting a company. Having a boring idea that expands a concept that was stuck doesât seem like a fascinating venture to get into for most novice HS dropouts due to their fantastical illusion about startup founders. Yet the reality is, to be rich takes a lot of boredom, convincing, education, normalcy and plain simplicity. From building a company to passively investing, you need to find a method that works for you that is sustainable.
Not a get rich quick scheme.
Most people get overwhelmed about managing their money because they see it involves numbers and timelines, prices and advisors yet the reality is, itâs simpler than it seems thatâs why the people who are winning the game are doing better than ever while the rest are sitting on the sidelines working 10x harder for less.
Mania in the Markets
Investors couldnât be more jittery than today. With bottlenecks in the supply chain, to inflationary fears, Fedâs tapering of stimulus through quantitive easing (more money pumped into the economy by buying more treasury bonds), high unemployment, labor shortages, uncertainty about the future in terms of reopening, too much demand and the rapidness of the recovery never seen before is leading to increased confusion and readjustment.
If you want to learn why this recovery is way too fast and different from any other recession, read here.
Thereâs always something to worry about. These global macro factors and systematic risks can take over your life and distract you from taking advantage of the longest bull market in history.
But as every wise investor would say, you have to stay prudent, vigilant and keep one eye open at night to understand how these factors affect our portfolios.
The worst thing you can do is be rallied up from your prior gains and disregard the future. You believe nothing will stop you because youâve made it this far and your id is blocked from telling you that no one can control the future and the past doesnât matter in the market.
In that case, letâs focus on what we can control which is the present. Whatâs guaranteed is today and what we make out of it so letâs get a grasp on how to let our money work for us.
#1 Save Early + Automatically
Spending is obviously easier than saving but the more you earn, the more you must save. Saving generates one of the largest returns for your portfolio since you can reinvest the cash, pay down debt and stash some cash away for emergencies.
Saving isnât lame. Not doing it will and can get you in massive trouble.
Itâs unfortunate that majority of people only save in the single digits due to lifestyle inflation creep. This allows the top 1% to save almost 50% of their income. You most likely have what you need. Start with small steps and increase your savings overtime. In the meantime, look for a higher-paying job, rent out your property or purchase a new one to earn rental income, pick up some side hustles online or simply invest in yourself to skyrocket your future.
When it comes to automatic transfers and deposits, itâs the same deal as saving and is ultimately there to make your life easier. If you are enrolled in a 401(k) plan at work, most likely part of your paycheck is dumped in there along with your insurance health care benefits and the rest in your savings for you to decide what to spend it on.
Enrolling yourself in a retirement plan is the best decision you can make at work because when youâre unemployed, these benefits are lost. Paying for individual health insurance, social security, pension and keeping up with your 403 (b) or IRA can be costly so you always want to match your benefits to the full amount because it can help your earnings compound faster.
#2 Prepare for the Worst Hope for the Best
This cannot be stated enough. People change when they are forced to not able or advised to. This leads most Americans into a rabbit hole. Not only 50%+ are living pay-check to pay-check and cannot afford to pay down an unexpected emergency expense, they are too jolly about the future.
The truth is, you are never irreplaceable but you can make yourself irreplaceable by simply showing up and making people feel good. This will lead people to rely on you more (which is a good thing when building rapport) and possibly help you land a sturdier better paying job you deserve.
Most people neglect retirement until itâs late when they need the funds to live. It is the most expensive era of your life especially considering tuition, gas, food and housing are only rising while wages are staying stagnant.
Building a financial stash equivalent to 6â12 months of emergency expenses is key in case of a hiccup or random bat virus. The older you are and the higher your salary, the larger your emergency fund should be because it will most likely take longer to find a job that suits you. The more you make, the more you determine whatâs best for you not whatâs out there on Glassdoor.
From borrowing money to selling something you own, these are the worst moves one could make and can all be prevented with a little cash. Cash doesnât devalue if you need it and you never know when you will.
#3 Diversification and Asset Allocation
Asset allocation is thrown around all over the place but what does it actually mean?
Not putting all your eggs in 1 basket. Diverificaiton is one of the best ways to not spread yourself too thin and be able to maximize returns while minimizing losses.
From hedge funds to individual investors, their primary goal is to have a balanced fund to invest in stocks for appreciation and bonds for income. An appropriate split is in investments between stock for growth, bonds for income and money-market instruments (cash/short-term debt) for stability is key.
To determine your true risk tolerance which is the amount of money you are willing to risk and how much loss you can withstand, identify how you do in a bear market, correction or any recession. Instead of trying to time the market picking individual stocks, set a balanced allocation. The younger you are, the less risk averse you can be since you have a constant stream of savings and longer time horizon to withstand losses.
#4 Check Out Those Pesky Fees
From expense ratios to commission fees, they all add up and they add up quick. If you want to take off the burden of research and keeping up with the market, hiring a fiduciary financial advisor/broker-deal/portfolio manager is recommended to plan for your future and allow your money to fuel your goals.
Keeping investments is simple and can be cost-effective. Simply following Buffettâs long time advice of investing in low-cost index funds can help you generate massive consistent returns tracking the broader market. No need to beat out an individual stock or index to only get killed.
Make sure to become familiar with how your advisor makes money. They will earn no matter if you loose or gain in the market because they are simply advising and consulting you.
In his 2013 Berkshire Hathawy shareholder letter, Buffett shared his legendary advice:
âPut 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguardâs.) I believe the trustâs long-term results from this policy will be superior to those attained by most investorsâââwhether pension funds, institutions or individualsâââwho employ high-fee managers.â
#5 Earn More Spend Less
Nearly 60% of 1,000 Americans surveyed by Charles Schwab said they lived paycheck to paycheck. Itâs not surprising that many Americans do not have an emergency savings fund in place.
Lifestyle inflation gets in the way the more you earn so itâs vital to consider why you are making your purchases.
Do you want to impress others or do you genuinely need it? Of course you need to live life and buy things for pleasure after working so hard, but after youâve had some fun and had a fruitful spending spree, consider how you would feel afterwards.
Did it genuinely make you feel better, healthier or worse, hungover and regretful?
Most of the time itâs the latter.
Money is a drug and can be a tool if you let it be. Everything in moderation is key.
Itâs not about how much you make/earn, itâs how much you keep.
#6 Take Advantage of What You Have
You can only get rich if you work for yourself.
FALSE.
You can still earn big bucks working for a company, not only as CEO, MD or partner but rather just as a superb analyst or marketer if you diligently save, maximize those employee benefits and take advantage of what you have.
Itâs not cheap to max out your 401(k) to prepare for the most expensive era of your life (retirement) nor eat that free food at your companyâs cafeteria. You are meant to be there and itâs provided.
Only one in four employees whose companies offer to match employeesâ 401(k) contributions saves enough in their plan to get the full match. Thatâs according to a May 2015 study by Financial Engines, which examined the records of 4.4 million participants at 533 companies.
Forgoing the full match means not earning an average $2k for each employee or extra 2.4% in annual income.
Not only setting up a 401(k) is key to success but taking advantage of the Roth 401(k) that has recently been added to employee benefit plans is vital as itâs a post-tax fund with after-tax dollars.
With younger fresh grads out of college with low incomes, this is helpful as they can draw money from this pot of gold when retirement hits and there are no deferred taxes on it as opposed to a 401(k).
Lastly, donât forget disability insurance.
Most people think about life insurance over being disabled yet youâre much more likely to be disabled than to die.
Most large companies such as C-suites provide basic disability insurance as a benefit and if you choose to pay the premium yourself, disability payments will be tax-free.
Whatâs certain is uncertainty. Tapping into what you have, know and can control is key to a financially free life. Anyone can become anything if you focus on the basics.