What Wealthy People Know About Money, But You Don't
- Daniel Eisold
- Jan 14, 2018
- 6 min read
Everyone's part of the grind
It's tragic to think that the vast majority of people do something they hate to make ends meet. It doesn't mean necessarily that they hate what they actually do; they mostly just hate being compelled to do it. The pressure, the stress, the workplace conflicts, they all add up. Once you resent coming to work, you're on a downward spiral that you probably won't be able to turn around.
That doesn't have to be you, but don't let anyone tell you there's a quick fix either.
For my most recommended way to save, look up 'the jam jar method'. Simple but effective.
I just use different bank accounts instead of jars.
No, local moms in your area aren't earning $10000 dollars per month working from home
Why are those adverts always American?
Anyone who tells you that you can break the cycle easily is a charlatan. They want you to do the work for them - a sort of pyramid scheme. If anything looks too easy, that's because it is.
But it can be done, pyramid scheme and loophole free. It just takes a bit of an attitude change, and time in which to make those changes.
The difference in attitude to money is normally what sets apart the poor from the comfortable. What sets apart the comfortable from the rich? Probably an array of psychological issues and complexes, but you'll have to look elsewhere for those. I'm not rich, so I can't say - but I live very comfortably on very little, and I can help you to as well.
You start by learning the difference between money and wealth
Money is just a medium of exchange. It represents wealth, but it isn't wealth. If you keep £100 in a drawer for 50 years, inflation will eat it away until it's worth next-to-nothing. There's a lot more money in the world, so that £100 is a smaller share of the whole. If you bought a £100 gold chain - something material - and left it for 50 years, it's going to be worth thousands upon thousands, for the same reason.
It all basically means that..
Having the most money doesn't mean you win
It's one of the first things to let go of. Buy things that you like and that you need, but please, don't buy things you neither like nor need just out of competition. Have hobbies, collect expensive things, wear nice clothes - whatever. Just don't go from having zero interest in cars to buying an Audi because you wanted to show other people that you've got spare money but no imagination.
Cars are a sink for wealth - imagine putting the gold chain, from the example above, in the drawer just to take it out the next day and find half of it has gone.
If you really want to advertise your bank balance, there are FAR more economical ways to do it. You can get a really impressive suit for a fraction of the price of a decidedly average car. Use the money you save doing this for things you want - never spend money based on what other people think.
You might regret splashing out on a new car that you only use to commute. My mattress cost an eye-watering amount of money. Do I regret it? Hell no. If I'm going to spend 1/3rd of my life asleep, I'm doing it right.
Priorities, people.
How do you translate those savings into greater freedom though? It's simple enough.
Stop looking at work like indentured service. Maintain the freedom to move around, or you are theirs.
This isn't equally possible for everyone - but never let yourself need your job. The best way to do that is to save up a contingency fund - if you know you can survive for 6 months without any income, you'll be able to throw your weight around a little bit more. How big would that fund need to be? Well, how long does it take to get a job in your industry? If you think you can do it in 2 months, save a 3 month fund. If it takes 3 months on average, save 4, and so on. The extra month isn't just for caution- it's because they probably won't pay you on your first day.
Once you aren't financially handcuffed to your job any more, you'll see it in a whole new light. You'll be more confident, more relaxed, and that will have it's own benefits; maybe you'll find the self-respect you need to ask for that pay rise, or request that you start working from home. They threaten to fire you? Call their bluff. You don't need them. Living payday to payday is risky and gives away all of your control.
A good question to ask yourself is 'what would I do if retirement was never going to happen?'.
How would your choices in life differ? If your daily grind was forever, what would you do differently? You can't defer doing all the things you want to in life until you're old. It doesn't make sense. That sort of thinking is just an excuse you make to yourself, because you're afraid of taking any leaps of faith. Take the faith out of it. Prepare. Save up for two years and take a third year off. Or save up for ten years then reduce your working hours for another ten. There are lots of possibilities. Think long-term and recognise that a month's wages can normally sustain you for more than a month.
Start early, and amass a pool of resources that you use to support yourself
You can't do this one without doing a bit of research, but it IS something that everyone can do. Commit to living on only a certain percentage of your wage - it could be 95%, it could be 50%. Use that remaining amount exclusively to make yourself more financially independent - and by that I mean making your spare money earn you more money. I don't want to make this about my personal finances, but I don't rely on my employer giving me a pay rise any more. I can depend pretty solidly on my own preparations. That's a comforting thought.
Unless you have a great idea for a business (I'm of very limited use there), then the way that the rich do this is with stocks and shares. If you're working class, you'll struggle to get your foot in the door here. There's a lot of research involved, and there are NO 'stocks and shares for dummies' guides that are actually any good. No one will teach you about it without charging you, and no one will give you honest advice that won't benefit themselves. What everyone is out to do is take a cut - that cut can never be eradicated, but it can get very, very low. Research.
If you are thinking 'but can't you lose all of your money on stocks?' then the answer is technically yes, but realistically not a chance. Not if you do your research. Dive right in with no idea what you are doing, on the other hand, then you might. Research.
I have lots to say on the subject but I will save it for another blog post. Needless to say, I did the research myself and, 6-or-so years on, I'm doing fine - but be really careful who you listen to. Start by looking at automated trackers, that's where I began.
The all time average interest earned by stocks and shares is about 8%. That's not too much to expect from your own fledgling portfolio.
Without tax (e.g. an ISA), 8% interest will double your money in about 9 years (handy little equivalence to remember). That sounds like a long time, but it's nothing compared to a 50 year long working life. Imagine for a second, that when you were born, your parents deposited £2000 in stocks and shares. Here's an estimate of what it would look like if you never paid another penny into it ever again.
0 - £2000
9 - £4000
18 - £8000
27 - £16000
36 - £32000
45 - £64000
54 - £128000
63 - £256000
So if you have a young child, and you want to buy them a lavishly comfortable, very early retirement - you can do so for a couple of thousand pounds. Easy. For this, you don't even need to do much research - a standard stakeholder pension will manage it.
Essentially, this means that £100 (of value, not currency) now, will be worth £18,000 in 60 years or so. It's maths like this that keeps some people rich. Not knowing is what keeps people poor, but the younger you are, the easier it'll be for you.
I hope you can apply some of these principles to your own situation. Maybe you'll thank me in say, 30 years, when you finally reach the Nirvana of being able to live purely on the interest and dividends of your investments. Race you there.
Have anything to add? Did I miss something? Want more details? Please comment below, and subscribe - I'll probably say more on the subject at a later date.
Some things I refrained from going into too much detail on:
'Ah but what would you do in a recession?' (I can't wait for the next one!)
'Stocks and shares is so impenetrable' (I spent 6 months off work researching before I made my first buy. Subscribe! There's more to follow.)
'What should I invest in?' (Complicated. I'll try to give general advice in another post.)
'Is stocks and shares the only way?' (That's not actually where I started myself. More to follow on this too!)