Yesterday we discussed the steps to getting control of your personal finances, today I’d like to cover some very good reasons for making that sacrifice and effort. Not living paycheck to paycheck is a very worthy goal all by itself, but that’s a pretty low bar to reach. What if I told you that by living below your means, saving and investing wisely that you could be rich? I mean wealthy far beyond the average American. Wealthy enough to have at least three million dollars in money that you can invest.
Some of you are looking at your modest salary and thinking that’s impossible. How can I be talking about getting rich when you’re struggling to cover rent every month? It’s not a pipe dream and I’m not trying to sell you on some foolproof system. The truth is most people who are rich get rich by following a simple formula that’s as old as investing. It’s almost disappointing to discover that the formula for getting rich is pretty exactly what it’s always been; work hard, save money, invest wisely.
The Vast Majority Earned Their Wealth
A survey by US Trust found that three-fourths, seventy-five percent of the wealthy today grew up in middle class or poor households. Only about ten percent were born into wealthy families, although rich young people are more than twice as likely to have inherited wealth. That shatters the myth that the wealthiest among us were also the luckiest. Like with anything, those with work ethic tend to make their own luck.
The wealthy also believe they worked harder than other people and that contributed to their success. That also lines up with the fact that more than three-quarters, seventy-six percent, believe that building a business builds success. The wealthy don’t give up and just keep working the long game of work ethic and investment success.
The wealthy among us don’t invest in get rich quick schemes or even worry about maximizing their returns. Roughly half have built their wealth through capital gains and a full eighty-six percent claim to have made their money with long-term buy and hold strategies. A full eighty-three percent say that small investing wins over time is how they built up fat stacks of cash.
Roughly two-thirds of the wealthy believe they’re more willing to sacrifice and live below their means. That is a key element of success. The wealthy among us are not trying to keep up with the neighbors and they understand housing is an expense, not an investment. The wealthy among us were willing to sacrifice that fourth bedroom or even the third one in order to have enough money to invest. The wealthy know that investing in housing means investing in commercial real estate and don’t confuse the two.
The Wealthy Keep a Lot Of Cash On Hand
The wealthy keep a sizable portion of their wealth in cash, many holding as much as thirty percent of their assets in cash. The wealthy keep so much in cash understanding that cash loses value sitting in a money market account. For the most part they’re not interested in strategies to maximize returns or even to a widely diversified portfolio. In the world we live in today, where central banks play silly games with currency, it makes sense to hedge the buying power of that cash with liquid hard assets. A little less than half of the richest Americans keep a significant portion of their wealth in hard assets. That’s the one place I break with my wealthy neighbors. Liquid hard assets, like gold and silver bullion from the U.S. Mint are cheap insurance policy against the buying power of cash.
The financial world we live in today is somewhat different than the one our parents grew up in but the same principles hold for building wealth still apply. Don’t focus so much on making money as being consistent and investing for the long haul.