"How do I get rich fast"? I get that question a lot. Usually, it comes from young men in their teens and twenties. My usual response is you don't get rich fast; you get poor fast. That answer is generally not what they want to hear, so I have decided on a different answer. I will show you how to get rich fast with a caveat. Fast could equal 10 years, 20 years or maybe, NOW. Let's take a look.
The average working stiff in America can get rich within a decade IF they are willing to make the needed sacrifices along the way. This means most people with a paycheck that runs from $40,000 to $80,000 a year (cost of living per location and skill set tends to dictate the size of the paycheck per the profession) would have the ability to reach a level of wealth within one decade. Let's see how it could work.
Let's say you have a paycheck of $60,000 a year in a middling cost of living area somewhere in the United States. At least 15% of that will go to taxes right off the top (federal and state income tax and FICA). Best case, that leaves you with $51,000. Now you get to start making the sacrifices because you want to be "rich" in a decade. You start with your expenses and that means cutting out most of the wants.
You start by getting your housing and vehicle costs down. Those two expenses have a major impact going forward. Let's say you really want to get rich fast so you keep those two items to no more than $20,000 a year (includes everything that goes with the home and car to include insurance, maintenance, utilities, gas, etc.). I told you this would require sacrifices. Renting and no car payments will work well for many.
That takes you down to at least $31,000. Now you have food, fun and whatever. Here you decide that you can live on $8,000 a year. This means eating out rarely and finding ways to have fun without spending much money (a little creativity can accomplish this feat). This takes you to $23,000 that could be saved and invested for the year (paying extra on high interest rate debt might be a better option). Now what?
You invest the $23,000 into a Roth 401(k) at work and a Roth IRA outside of work. You focus on stock index funds with very low fees. Most goes into VTSAX (historical return is 10.5%) and VSIAX (historical return is 13.5%). If you do that over 10 years at a compounded rate of return of 11%, you end up with $426,912 tax free. Add in the match of $44,547 and you get around $471,000. Is that good enough?
You decide you can reduce the expense a bit more and you start a side hustle or two, bringing in more money that you could save and invest over time. Let's say you were able to save an extra $2,000 a year being extra careful with spending and then pull in another $10,000 after taxes a year with overtime at work or a side hustle outside of work. Now you can save $35,000 a year.
That takes you to about $694,197 in a decade. Now that you are "rich" you can go find another job you love, but may not make much money. It will not matter because you have learned how to live far below your means. Now you stop saving $35,000 a year and instead, save $7,000 a year as you max out your Roth IRA each and every year. How does that change things?
Starting with $694,197, a yearly contribution of $7,000 at an 11% rate of return over the next 10 years takes you over $2,101,000. You are now financial free after 20 years. You now decide to start your own business because you know exactly what you want to do with your life and it is clear what your talents are at this point. Financial freedom provides the opportunity to become the very best version of YOU.
As you were reading what I just wrote, what was going through your mind? Those of you who started running numbers in your head to make it work for you, have a real chance of becoming "rich". Those of you who found reasons why you cannot do it, will not. So, the start of this process is actually the mindset. You have to see the opportunities in front of you and then believe in your abilities to make it happen.
I did not include a family with two incomes. I did not include having children. I did not include living in a high cost of living location. I did not include the inevitable negative events in life. Those things will not stop you if you have the right mindset, behaviors and willingness to adapt. You can get "rich" as a single person or married couple with or without kids. It is up to you. Read The Millionaire Next Door to learn more.
Why do I keep putting quotations around rich? Because it is subjective on how each of us defines it. Here are a couple of numbers that many people have collectively stated when asked on what defines "rich" in America. You have to make $500,000 a year or have a net worth of $2.2 Million. Some of you might think those numbers are too low! I think they are ridiculously too high. Let's dig a bit deeper.
Those numbers have you comparing yourself to other Americans. What makes you "rich" as a citizen of the world? A recent report shows that if you have over $93,000 in net worth, you are richer than 90% of the world. Think about that for a minute. Many of you reading this newsletter right now are rich! Stop comparing yourself to other people in America and start being thankful as you look out over the globe!
Let's take this message back to the beginning. How can I get rich fast? You could save $6,000 a year while avoiding debt into those stock index funds for 10 years and end up with $111,368 at an 11% annual return. The employer match takes you to $167,000. That would make you richer than 90% of the world. This is another reminder how lucky we are here in America. Opportunities abound. Possibilities are endless.
It comes down to how we see our place not just in the United States, but in the world. You and I are very lucky individuals and gratitude should be at the top of our to do list on a daily basis. Instead of asking, "How can I get rich fast"? Let's ask a far more important question. "How can I use my talents to help others and make the world a better place"? That my friend, can make you the richest person in the world!
