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How to get rich... Slowly
Who Wants to be a Millionaire?
Ever wondered how to guarantee being rich one day? This is a method that really works:
This article is about simple low risk ways to ensure that you live and eventually retire in the style you deserve. You can work really hard and earn lots of money, but investment, saving and careful, intelligent spending of your money is just as important.
Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.
Get Rich... Slowly
The old joke "The easiest way to end up with a million is to start with 2 million" is of course very true, but it really is easy to become rich(er), it just takes a long time. O.K. It's easy assuming your income more than covers the essential out-goings.
People dream of becoming rich by winning the lottery, getting a fantastically well paid job, having an amazing business idea, marrying someone famous etc. but none of these are easy or likely. Also, getting the money is only a small part of the equation. Investing and spending are also very important considerations. Spending money may be fun, but it doesn't make you rich (it just makes other people think you are rich)
Earning a huge salary is a great idea if you can, but there is a limit to the number of hours in the day and to how much you can earn per hour. There is also a lot of competition for those illusive highly paid jobs. Investing in the latest get rich quick scheme may also not really make you rich, although investing gradually over a long term can be very beneficial. The one thing that really will make you richer is spending less.
Here are some investment ideas:
The Route to Guaranteed Wealth
It's easy, but boring...
The most damaging expenditure is the small habitual items which are easily ignored such as cups of coffee, bottles of water the occasional taxi, magazine subscriptions and Gym membership, but it is easy not to notice the accumulated cost of these things. Here is a way to really guarantee becoming richer... eventually.
Here's an example: Bob works in The City (i.e. in London) and takes the train/tube to work each day for 35 years. He buys a newspaper, a cup of coffee and a snack and falls asleep on the train. At work he has 4 more cups of coffee two bottles of water (despite both being available free from the water-cooler and coffee machine) Add a Â£6 lunch and another drink, snack and Evening newspaper on the way home. None of this seems unreasonable for a wealthy banker, and comes to a total of just Â£20 a day. That's just Â£100 a week or nearly Â£5000 ($10,000) a year. Adjusted for inflation giving up these "luxuries" would save Â£155,000 over 35 years, in today's money. If you were able to get an investment return of just 5% above inflation on the saved money this would equate to an extra Â£411,000 (almost a million US dollars) at retirement, just by giving up a few habitual treats. If you add on a couple of pints of beer and a Â£10 taxi ride each day and an investment return of 10% and you've got an extra Â£2.3 million ($5 million) at retirement. Just cutting one of those cups of expensive coffee a day could save Â£88,400
Another way to look at this is, if you save just Â£1 extra each day you could retire a year earlier. Save Â£10 per day and you could retire young.
Expenses that erode wealth
You cannot cut out all of the pleasures in life just to retire rich, but some expenses just erode your wealth without really benefiting you, such as the taxi to the expensive gym (why not walk to the gym and home again without going in, and save the cost of the taxi and the gym)
Business air travel is another one of my pet hates. I travelled on business a lot for many years and enjoyed travelling business class (I never paid for it myself though). The business lounge is better than having to pay to sit in a cafe or bar and the extra leg-room is nice. If however you calculate the additional cost per hour of the flight then calculate your net income per hour working, suddendly the flight may seem expensive.
e.g. For someone earning Â£50,000 a year working 45 hours, commuting for 10 hours with another 10 getting ready and recovering from work, each week the real net income per hour may be just Â£10 and rather less when you include travel costs etc. A business flight might cost you up to Â£100 per hour extra and a long-haul flight may equate to hundreds of extra hours spent in the office during your working life. Give up business flights and you can retire young!
New cars are another terrible waste of money. People often refer to a house as being the most expensive thing you will ever buy, but for many people it is really their cars when you take depreciation into consideration. I'm not a huge fan of property as an investment, especially at the moment and property ownership will erode a lot of people's wealth over the short term and especially "buy to let" (i.e. buying property to rent out) investment, but the worst investment of all for many people is their car. At least houses approximately track inflation over the long term. Cars do not. Buying a used or nearly new car avoids a lot of the initial depreciation.
It's easy to retire rich, or alternatively retire very young, but you have to give up a few of those little pleasure to reap the returns many times over later on. Spend less than you earn and avoid debt. As for how to invest all this extra cash to improve the returns still further that will be the subject of future lenses, but there are also some suggestions:
How Much Money Do You Need To Retire?
How much money do you need to stop working?
If you are happy to work until you are 65 then live off an average salary (currently the median income in the UK) of Â£20,000 a year, then you won't need very much.
The best annuity rates are about 7% (at time of writing) and the old age pension is a little under Â£100 per week, so to achieve "average" pay in retirement would need just Â£200,000 in a personal-pension (or an ISA - Individual Savings Account) and to achieve "minimum wage" (a little over Â£10,000 per annum working full time) you would need just Â£70,000. Unfortunately most people actually have rather less than that when they retire. Obviously most of us hope to retire on a lot more than minimum wage.
Theoretically you need less money when you give up work than you do while working: you no longer need to pay for transport to and from work, nor for work clothes, expensive coffee, lunches and after-work drinks etc (see above) and your tax bill may also drop (higher personal tax allowance and possibly a marginal lower tax rate) but you also have more free time and more time to spend your money.
But I want to retire early!
What are your minimum outgoings? This is the amount that must be covered before taking any risk with your assets: The costs that must be covered such as bills, food etc. In the 1990s many "Day Traders" went bankrupt because they needed to trade just to cover the bills and during a losing streak they ate into their capital and once you have lost it it is difficult to get it back. If you have bills of Â£1,000 a month that have to be paid this should come from some reliable source. Index linked government bonds are the only guaranteed way of getting inflation-proof return forever, but pay just 1.5% (plus inflation) so you would need Â£800,000 invested in index-linked gilts just to cover the bills, before even starting trading shares or Spread-trading
Alternatively, taking a little more risk with a balanced portfolio you could have less than Â£250,000 invested to cover these essential costs. If you are willing to take on some part-time work or can cover some of this amount from blogging or with your Squidoo or other internet earning then this safety margin can be reduced. You then need to decide how much money you want to earn on top of this minimum risk reducing part of your portfolio and adjust the risk of the remaining part of your portfolio accordingly. Remember that if you lose your money you cannot get it back.
For details about how to earn money on the internet and create a suitably engineered portfolio to meet your requirements please see the related articles: