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| How to get Rich in 3 Steps |
I recently read a book called “Total Money Makeover” written by Dave Ramsey. One of the ideas in the book that stands out to me is when he said that:
To be rich, we know that we need to spend less than what we earn. Then save and invest that difference for it to grow. But this is easier said than done.
We already know what to do but we don’t do it.
In this post, we will talk about how you can do this. At the end of this post, hopefully, you will be motivated to take action and take control of your financial life.
How to become rich in 3 steps
There are just 3 steps you need to do:
1. Eliminate debt
2. Save money
3. Invest your money
Yes, it is as simple as that.
You are probably thinking right now that doing this will take you a really long time. Plus the idea of depriving yourself now so that you can save and invest a lot is not fun and exciting at all. And also you have no idea where to invest your money.
I will answer all those questions in your mind as we explore these 3 steps. So let’s start with the first step:
Why do we buy things?
We have debts because of the things we buy(sometimes experience)
Answering the question of why we buy will help us minimize debt. So why do we buy?
We buy things because we will simply use them. But why do we buy shoes that cost P3,000 when there are shoes that cost only P300?
Aside from the use, another reason why we want to buy things is the feeling we get when we buy things. We may not be aware of this, but most of our decisions are influenced by how we feel.
We feel good wearing new clothes, new shoes, new watch etc. There is nothing wrong with this. But if we come to the point that we have debt that we can't pay, it’s time to reflect.
DON’T GET INTO THE TRAP
At first, we are satisfied with buying new things, but as time goes by, our salary grows. We work harder, we feel like we deserve more so we buy gadgets, unplanned travel or a brand new car.
Then get married. Buy a house with matching furniture and appliances. Have kids. Get a bigger car.
We have to pay for the monthly payment of car, monthly payment of the house, monthly payment of appliances. Plus constant credit card debt .
We can’t stop working and have to work harder because of these upcoming bills. We find it harder to save money.
I call these a trap because even though you have a beautiful car and beautiful house. You are worried because of the upcoming bills. Your salary is spent on all of these material things. You cannot save money. The happiness that you first felt when you first bought that car, house or whatever is not there anymore.
So why we really want to have debt for a nice car and big house(and other toys)?
When were young ,we want to have toys, do you remember the feeling that you felt when you get that toy that you’re pleasing your parents to buy?
When we grow old, these toys becomes clothes, bags , gadgets, cars etc. Like food, alcohol, sex etc. This material things makes us feel happy. It is associated with social status, it is part of being human to feel good when we get the admiration and respect of others.
Though buying things will makes us feel happy at the moment, we have to ask ourselves if this things will really make you truly happy at all in the long-term.
I’m not saying that buying things to make us feel good is bad. But if you’re sacrificing a lot for these things, meaning you incur a lot of debt just to buy these material things. I think that you need to find a better way other than incurring debt to buy these things.
What is the better way to buy the things that you want to buy?
Good question.
The answer is:
DELAYING GRATIFICATION
Have you heard of the marshmallow experiment?
It is a study where psychologist give 5 years old an option whether to eat the 1 marshmallow now OR wait for 15 minutes, then they can have 2 marshmallows as a reward for waiting.
Many years later, they track the lives of the children who waited 15 minutes to have 2 marshmallows as a reward for waiting. They found out that the lives of the children who waited compare to the children who eat the marshmallow right away were better in terms of educational attainment, relationship and general well being.
If you want the nice things, you have to wait in order to truly appreciate it.
Yes you can have that nice car, big home, around the world travel now. But that comes with a sacrifice. That sacrifice can be debt, a lot of debt.
The monthly payment of car and the house loan will be stressful because you keep worrying for the next payment. You have to work hard every day so that you can afford the payment of your car and house and other debts. That is the sacrifice you will make.
If you wait. You won’t have a large monthly payment of debt. You can save a lot of money. You can invest a lot of money. And most importantly, you will be less stress.
How to avoid or minimize debt?
The real reason why we incur debt is because of the things that we bought. So the simplest way is to avoid them. Ask yourself the real reason why you want to buy the things you want. Is it really worth it? Is it worth sacrificing your financial future for all these material things?
There are debts that we can’t avoid, like when you buy your house or car (if you really need to). But it can be minimized. By settling for a smaller home. Or a second-hand car.
All of these boils down just to minimalism. Less consumerism. This one blog post won’t be enough just to transform you to a frugal person. You’re the only one who can do that on yourself. That’s a choice for you to make.
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STEP 2 SAVE MONEY
When I first started working, it is hard for me to save. I always said that I will save money next payday but still end up saving nothing. Thankfully I was able to adjust and saving every payday became a habit.
So why do you need to save money? It is simple so that you can have money in the future.
If you are someone who does not feel the need to save, here are some benefits of saving that might convince you:
- When you save some money, you feel like your in control of your like. You will feel like the hours you put in on work is put into something.
- Someday you will thank yourself because you save now.
SAVING MONEY FOR THE RETIREMENT
Another major reason for saving now is to have money in the future once you retire.
I know most people don’t do this because retirement is very very far away.
Some of the reasons why most don’t bother to prepare for their retirement are:
1.YOLO, you only live once.
2.The reasoning that you can get rich along the way and you don’t need to worry about retirement.
I know retirement is not that exciting at all also, the idea that you work for 40 or 50 years so that you can enjoy the life you want once your old is not exciting.
But if you save and invest earlier, you might retire earlier. There are people that save a lot during their working years and able to retire in 15 to 20 years.
Retiring in your 40s sounds more fun than retiring in your 60s
YOU CAN STILL ENJOY LIFE WHILE SAVING
You’re probably thinking why would I deprive myself now so that I can have money in the future?
You don’t need to deprive yourself. You can still enjoy life and buy the things you want while at the same time saving and investing money. It’s all about managing your money.
There’s nothing wrong with buying the things you like. As long as you control it.
You know when you spend too much is when you bought something, and the upcoming payment is stressing you out. Saying things to yourself like “ I shouldn’t have bought this”.
Most of the time the enjoyment on materials things doesn’t last anyway. Most people incur debt because of poor money management. Most of the things that we buy are impulsive. So to avoid overspending on these things – Save money first then allocate a portion of your salary that is for your material wants.
STEP 3 INVEST
Why you need to invest?
This is to grow your money. If you don’t invest the money you are saving, it’s value won’t worth the same many years later. This is because of inflation.
Aside from beating inflation, by investing now, you grow your money. It’s making your money work for you.
Anyone can learn to invest
Only 8% of the population has some form of investments in stocks, mutual funds, bonds, UITF based on the latest reports of the BSP.
What are the reasons why most people don’t invest?
There could be a lot of reasons, but I think the most common reason is that investing is not in our culture. No one told us to save money and invest it. We are more familiar to hearing things like “study hard and get a good job so that we can live a good life by buying a big house and a beautiful car”.
No one told us to save and invest. But that doesn’t mean that you can’t. I myself no one taught me to invest. I learned it by myself. (and still continuing to learn)
We’re living in special times now. There are a lot of mentors teachers authors that can guide us. We can read books, watch them speak.
If you’re reading this because a friend recommends it or you just randomly saw this on facebook, congratulations on taking the first step. That first step is learning to invest.
Another reason, why most people don’t invest is because of the following misconceptions.
COMMON INVESTING MISCONCEPTIONS
#1You need to be an expert to begin investing
When we hear the word invest, the most common investment that we think of is investing in stocks. Investing in stocks will require you to learn things like using a trading platform, understand terms like board lot and tick size etc. but anyone can do it.
There are a lot of other investments aside from stocks like UITF and mutual funds. These are probably the investments I would recommend to someone who just started investing. These are pooled funds that are managed by investments managers.
Aside from being professionally managed, it provides the investor with diversification resulting to less risk. Mutual fund and UITFs are also affordable. Most UITFs and mutual funds require an initial investment of P10,000. You can invest thereafter for only P1,000.
#2 You need a lot of time to invest
You don’t need to track your investment every day. You can just invest now and many years later it still will be there. You can even set up your bank account to automatically deduct and invest an amount for your UITF or mutual funds investments.
#3 Investing will make you rich fast and easy
I’m sorry to say that but that is not true. Imagine if there is an investment that promises you to be rich fast and easy, many of us will be a millionaire by now. To truly reaps the benefit of investing, it is best to invest for the long term.
CONCLUSION
If you read this post because you’re looking for answers on how to be rich by having many material possessions, well sorry because I can’t say how you can do that.
Being rich has many definitions, for most being rich is having a lot of material possessions like a big house and fancy car.
To me being rich is simply when you reach a point where you don’t have to work for money anymore.
If you’ve come this far, and follow those steps. Your life will be in financial order. This is as simple as being frugal and not having mountains of debt, then saving and investing everytime you receive your salary.
You won’t be rich that way(yet). But you can live with less stress(less debt) and also have confidence in your financial future. Instead of working till you’re 60 or 65, who knows you can retire at ages 40-50 or even earlier.
Imagine not waking up on a Monday morning? Not having to commute and experience traffic on your way to work? Or no office politics?
Most of all having free time to do what you really like and care.
Is it worth it sacrificing the material things for those?
The choice is yours.
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