Dishonest money dwindles away, but he who gathers money little by little makes it grow. Proverbs 13:11
I have a 100% fool proof way to get rich. This is not a scheme or a penny stock tip, and it works every time. You ready? It’s only 3 steps, and they really aren’t that hard.
Step 1. Spend less money than you make.
Step 2. Save the rest.
Step 3. Repeat steps 1 and 2 for a long time.
See, that wasn’t that hard was it. Really it’s only two steps, but the title says 3 steps so I had to go with it. This is the really the key to personal finance. It’s so simple and yet so hard all at the same time. To spend less than you make you have to get on a budget and actually stick to it. Then you have to find a place to save the money and not actually touch it.
You have to have a strategy and plan to succeed. Get rich quick is not a strategy, it is a scam. The way to get rich is to save money over a long period of time and invest it wisely. If you do this, you will get wealthy. Dave Ramsey suggests saving 15% towards retirement in baby step 4. If you continue to do that over your working years you should be in good shape. I’d personally suggest saving a lot more than that if possible. Jacob at ERE suggests that if you can save 75% of your net income you can retire in as little as 5 years. Anywhere in between is reasonable and will make you wealthy if you can do it consistently.
There is plenty of material out there on spending less than you make, and making that gap as wide as possible. Basically it comes down to 2 things. You have to either reduce your expenses, or you have to raise your income. I’d start with the first part, as it is probably easier. Attack your debt if you have it. All that interest going out the door is the biggest killer of wealth. From there cut down on the little things like $4 cups of coffee and eating out for lunch all the time. Make your own coffee in the morning and pack your lunch. It will save you a lot of money over time. Basically get on a budget and follow it.
The second part is about raising your income. Do you have the opportunity to work overtime? Can you think of a way to make money from one of your hobbies? Start a side business. If you can make enough from your hobby to support your hobby, it frees up money in the budget for saving. Do you like writing? Blogging is certainly not a get rich quick scheme, but you can bring in a few extra dollars here and there. If you are still in debt you might consider getting a second job delivering pizza. The best way though is to work hard and make yourself indispensable at your day job. Your career is your biggest financial asset, and you should work hard to grow it.
Now we’ve widened the gap between our expenses and our income. Save the money in income producing assets like dividend stocks until you are making enough money from your money to quit your job. If you work really hard and cut back you can do it in as little as 5 years like Jacob did. If you are in a lot of debt or already have a family 5 years may not be that feasible. It can be done though. You can do it. He who gathers money little by little makes it grow. Keep working at it and you will make it.