Most people don’t know that in spite of recent economic times there are over seven-million millionaires in our country? That is probably because the media has more to gain by broadcasting the plight of the homeless and down trodden than they do by trumpeting the success stories. For some reason people want to hear about crime, struggles, and hardship so that is what garners ratings and sells newspapers. Most good stories are usually hiding somewhere between the later pages.
The politicians like to portray the financially successful people as “winners of life’s lotteries” as if they were merely lucky. This mischaracterization of the accomplishments of these people serves to set up an unnecessary bitterness between the classes. A much better alternative is to show the “less fortunate” group what they can do to raise their standard of living via their own endeavors.
In a previous story (see archives section) I illustrated, through the use of a strawberry farm, one of the main flaws in the mind of many: That is they live in a world of scarcity. They think there is only so much money (or strawberries or practically anything else) so those who have these things must either be lucky or they must have cheated in some way. That cynicism prevents them from achieving their own potential. Instead of looking inward for their successes, they hope the boss, the union or the government will watch out for them.
Sometimes they will try to increase their value by working harder, or taking training or getting more schooling. Those are worthwhile ideas but in most cases their new value, if any, is still determined by their employer or provider. It does not ordinarily lead to financial security, just a slightly plusher rut.
The difference between the “fortunate” ones and their counterparts has to do with how they look upon money. The less fortunate group perceives money as scarce, so they struggle to accumulate it. But the “fortunate” group knows there is lots of money to be had and they learn how to make the money come to them.
The “fortunate” ones understand the difference between good debt and bad debt and are therefore more likely to be debt free in the typical way we think of debt. They usually have some sort of budget and they abide by it fairly well. Because of that budget, they are more likely to save money than spend it on wild indulgences. By avoiding impulsive purchases they can use the savings they enjoy to make investments that generate passive income. Once they get to the point that they can live on the passive income, the rest of the money they earn is available for additional investments or enhancing their lifestyle. Once they get to that point, their net-worth grows exponentially.
It is not overly difficult for the common person to join the ranks of the “fortunate” ones. The first thing to do is rethink the role of debt. Basically, bad debt is a result of impulsive purchases or debt which cannot be paid off each month. It carries interest charges that eat into the buying power of the consumer. Essentially, any money spent this way is wasted and could have been saved and invested. For another list of millionaire practices as told by U.S. News and World report go HERE.
The next thing to do is look for ways to get your money to generate additional income. This can be as simple as buying CD’s or annuities. You might buy stocks or real estate. There are several other asset classes worth considering and each one offers its own risks and benefits. Here is a blog that explores how to earn passive income on line. Overall I like real estate the most because there are 4 ways to make a profit and you can get somebody else (tenants) to pay all of the bills.
Semi-passive investments are also appealing. For example, if you could buy or build one of those drive-thru car washes. Customers will put money in your pocket while you are not even there. A friend of mine has five-dozen laundry machines placed in several apartment buildings around town. They are fairly easy to maintain, they pay for themselves and they generate $30,000 a year in extra money. It only took him about four years of a casual but on-going effort to build his business from scratch. At the rate he is going it will only take a few more years to live off of that money. He can even hire somebody else to do all of the work if he wants to and retire while still in his thirties. His primary job, while respectable, can never offer him flexibility like that.
Even if you can’t think of a way to make money “on the side”, you can still earn a nice return just by paying off other debt, such as a mortgage. If you save 5-7% interest on that money you are using your money much better than running up credit card debt.
As difficult as it may be to believe, it is not impossible to become a millionaire in the
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As of now my wife and I combined are a "quarter-millionaire", so I guess we are really only "one-eighth millionaires" but I like the sound of quarter better. We're on track to easily be one of the millionaires by 50. We got a lot of help along the way, mostly advice and counseling, some opportunity, and very little actual funding. So for the most part we did it ourselves. It's been so long since I started caring about the future (13 years) that I kind of forgot how I got here.
ReplyDeleteI guess step one was figuring out where I was before I figured out where I wanted to go. I listed everything I had, and everything I owed, and came up with a net-worth. It was on a spreadsheet but could have been on the back of a grocery receipt. There were only a few lines, it took about 10 minutes, and unfortunately the net-worth line was negative. Since then I have compiled a fairly complicated balance sheet to track all of my assets and liabilities, and our net-worth has gone up.
I think it's kind of like your weight. If you weigh yourself every morning and you don't like the result, you sub-consciously make healthier eating choices throughout the day. If you only look at the scale after Christmas dinner once a year and don't like the result, you embark on some failed "new-year's resolution" that ends in January.
To this day, Heather and I write down all of our spending, our assets, and liabilities EVERY MONTH, as a financial "check-up". I can't help but think that this 1-hour monthly practice was a major sub-conscious contributor to our success. It also helps point out some poor spending or saving habits that we had, and once we knew we had them, we could correct them (maybe some people don't want to know).
I can't remember who it was, but one of my friends asked me about this years ago, and I said, "let's put together a balance sheet right now!". The response was: "but I don't really have much of anything to write". Irrelevant. Everyone has something, even if it's only debt. Try writing it out sometime.
The next step is to make a plan. What and how that plan works is a really complicated conversation that is different for every individual, but step 1 as I've explained above will take you 10 or 15 minutes, give it a try!
As a recent college graduate, a newly-wed, and a newcomer to paying my way through life (although this is debatable by feminists, because I went from my mom supporting me to my husband supporting me) I think I'm in a unique position to comment on how people accrue debt. For example, most of my friends have been out of college for a couple of years. They all have more than decent incomes (around 45-60,000 a year) and are fairly smart people. However, their spending habits are highly questionable.
ReplyDeleteThe few who have chosen to get married bought their fiances gigantic engagement rings. I didn't ask how much they spent on them, but knowing what size my own is and how much it cost, I can guess that it was well into the thousands.
They also have nearly brand new cars, with fancy features. They all have i-phones, giant flat-screen tvs, wii's, brand new computers. They have apartments that cost over $1,000 a month for rent alone, not taking into account utilities and parking costs. Two of our single male friends eat out for every single meal. That's around $100 a week, or more, for food for ONE person. Our friends all have healthy incomes, but whenever the discussion comes to credit cards, they all sigh, saying things like, "yeah, i have to pay those off...." These are supposed to be the best and the brightest, the new generation which will take care of the old. Their problem is that they cannot live within their means. They sabotage themselves from the beginning. College graduates come out of school with school loans, and oftentimes get good jobs, but then they convince themselves that they deserve all of these fancy things they can't afford. However, some nice people at the credit card company are willing to make their dreams of instant gratification come true. The levels of debt they accrue now they will probably spend their entire lives fighting, especially after they have kids and get mortgages.
Now, I've been given basically everything I have from various friends and family. I've been blessed more than most, with a good education and everything I've always asked for. But I think that Chris and I have learned some valuable lessons from those around us. We've learned to spend significantly less than we make and save money up. Moreover, we do not use credit cards. Ever, for any reason. Kudos to those who can use them and pay them off every month...I've yet to meet those people.
Chris and I will probably never be counted one of the millionaires, but we certainly will not rack up tons of bad debt, because we are committed to buying things only when we have the money, and living a simple lifestyle. A used TV from the salvation army for $20 is perfectly adequate, and our hand-me-down furniture is perfectly fine for us. People should learn to be happier with what they have, instead of convincing themselves from the get-go that they deserve all that their parents have without being able to achieve it on their own.
Sharon, I think most everything you said is pretty insightful except for one thing; "Chris and I will probably never be counted one of the millionaires". That is the exact mentality that leads people to not be millionaires.
ReplyDeleteOverall I agree with the way you look at life; reasonable expenditures and reasonable expectations. There is nothing wrong with living within your means. There is also a lot to say for living within the means of someone under your means. In the "Richest Man in Babylon" George Clason shows how living off the income of someone who makes 10% less than you allows you save 10% per year. That extra 10% can exponentially compound itself and make you the richest woman/man in Babylon. There is always someone who has 10% less than you.
What you see as your future with what you have now should not be what determines how you live your life. How you live your life now should be determined by where you want to be in the future. When you say that you bought a second hand t.v. you should follow that with, "buying a second hand t.v. today will allow me to buy as many t.v's as I want in the future".
I also agree that convincing yourself that you deserve something is dangerous. In America you only deserve the 'right' to achieve what you can. Most people end up achieving what they deserve, and that is right.
Never met someone that pays off their credit card every month eh?
ReplyDeletePleased to meet you! My name is Matt Rhode. I spend $3-4k per month on credit cards and pay them off every month. I pay an annual fee of $50, and accrue two free ($5 surcharge) airline tickets per year. The credit card isn't the problem, it's buying things you don't need and can't afford WITH the credit card.
Speaking of living within means and simple lifestyles, didn't I hear that a certain young married couple just barely scraping by on hand-me-downs is taking a trip to Japan?
As Matt said, we have a fairly substantial net worth given our age. I can confidently say that many of our friends in the same age bracket cannot say the same.
ReplyDeleteI can also say that neither Matt nor I were given anything to help us achieve the status we enjoy today. Sage advice, yes. Some opportunity, yes. A good role model or two, of course. But nothing physical, liquid, monetary. We did it all on our own through diligent financial record keeping, tightening the purse strings and a lot of trial and error - we're not perfect. We've made financial mistakes and plenty of them. But we've learned from those mistakes, that's the key.
Both Matt and I worked full time through college and paid our tuitions ourselves. I am still paying my student loan in fact. Both Matt and I have been employed since the age of 16 and I have not asked my mom for a single dime since I was 17 years old. The only times in the past 15 years that I have not worked were when I was either laid off, on maternity leave or on vacation. I bought my first car on my own and made the payments myself. I carried the insurance on it myself. I drive every single car I have ever owned into the ground (or they get wrecked but that's beside the point!) I did live with my mother until I was 19, but paid half the rent and utilities and bought my own food (keep in mind she was a fresh divorcee and needed financial help which is why I chose to live with her instead of venturing out on my own as many of my friends did).
I made some mistakes along the way. When I met Matt I had obtained about 7 or 8 store credit cards and was struggling to make even the minimum payment on each of them every month. Matt helped me get a loan through my bank which allowed me to pay off the store cards (and close them!), and after about a year I was able to pay off the bank loan. Now, older and wiser I understand that credit cards are not necessarily a bad thing, in fact they can be a very good thing in that they help build and maintain good credit and many of them come with various rewards (for every dollar you spend, you get X). But they must be used wisely.
So Matt and I might be considered two of the "fortunate" ones but we most certainly worked hard for that status. We are still working hard and sacrificing a lot and every month our debt line goes down and every month our net worth line goes up, little by little we're getting there. We sacrifice now to be able to afford some of life's luxuries in the future. Are we banking on Social Security, our 401K or PERA retirement accounts to get us through our “golden years?” Hell no. We are working hard to build our own investments; we are making our money work for us and are relying on ourselves, no one and nothing else to ensure a comfortable retirement.
The reason I say all of this is not to lament on how great I am (although I am pretty great) ;) The point is to give a real life example of someone who came from literally nothing, had no advantages, no trust funds, no extraordinary opportunities, and who has the very real possibility of becoming a millionaire in the next 20 years.