How to Get Rich

Sit down and make a savings plan. Focus on the things that are most important and prioritized. You can’t be rich without saving and you can’t save without knowing how much you have and how you’re spending. The main rule is to build a reasonable budget that you can follow and learn from. This is a big change (!) to achieve financial freedom.

Set aside a portion of your salary. How much is up to you. Some people spend 10-15% of their total salary while others spend a little more. ^[1] The more you save as a child, the more time you have to save and the smaller the amount you save. So start saving even if you’re only putting away 10% of your salary.

• Another rule that is used by many people to determine the percentage of pay out is the 8x rule. This rule advises you to save 8 times your salary in retirement. ^[2] With this metric, you will have 1x monthly salary saved at age 35, 3x monthly salary at age 45, and 5x at age 55.

Take advantage of “free” money. Only a few things in life are free and often not money. In fact, money is rarely free, so you have to take advantage of it as soon as you get the chance. Here is an example where we earn “free” money:

• Many companies follow the 401(k) retirement assistance program. This means that for every dollar you file into a 401(k), your company will also be submitting a dollar. Theoretically, if you contribute $2,500 to a 401(k) plan, your company will also contribute $2,500 out of a total of $5,000. This is pretty much the “free” form of money you can get. Take advantage of this. ^{[3] [4]}
• The 401(k) plan gives you a retirement account that you can put money into and get tax breaks. This means you won’t be taxed until a certain point or exempt.

Put your money into a Roth IRA — early! Like a 401(k) plan, a Roth IRA is a retirement fund where you invest your money and aren’t taxed. However, IRAs limit how much you can contribute annually to the fund (up to $5,000), but you can set a goal — in your 20s and 30s — to contribute up to that amount each year.

• Here is an example of how a Roth IPA fund can make you rich. If a 20-year-old contributes up to $5,000 to an IRA account every year over the course of 45 years at 8% annual interest, miracles happen. When they retire, they will have assets worth more than $1.93 million. ^[5] $1.7 million in profit is much higher than putting money in a regular savings account.
• How does a Roth IRA create such wealth? That is compound interest. Here’s how compound interest works. A bank or other financial institution pays you IRA interest, but instead of taking interest, you deposit it. So the next time you receive interest, you will not only enjoy the principal interest, but also the interest from the interest.
• The sooner you save, the better. If you make a one-time payment of $5,000 at age 20 and leave it for 45 years at 8% annual interest, you will have up to $160,000. However, if you make a one-time contribution of $5,000 at age 39, when you retire the $5,000 will be $40,000. So get started early.

Give up the habit of using credit or debit cards. While credit cards can be helpful in some cases, they encourage bad spending habits. Because they encourage cardholders to spend more money as they don’t face pressure to pay off until the day their balance hits a warning level.

• Not only that, scientists discovered that the human brain thinks about credit cards and real money very differently. One study found that cardholders typically overspend by an average of 12% to 18% while McDonald’s found that cardholders spend $2.50 more than customers who pay in cash. their store. Why is this?
• We don’t know for sure why, but we think holding cash feels a lot more “money” than a credit card, and it’s probably because the money doesn’t actually appear when you swipe the card. In a nutshell, credit cards are like billions of dollars — just virtual currency — in our brains.

Save your tax refunds, or at least spend smart. When the government announced the tax refund program at the beginning of the year, many people rushed to shop. They’ll think, “Hey, this is a godsend. Why not spend some for fun?” While it’s okay to shop occasionally (and for good reason), it won’t help you build wealth. Instead of spending your tax refund, try to save, invest, or pay off the debt you have. This won’t feel as pleasant as buying a few chairs or rebuilding the kitchen, but it will help you achieve your goals in the future.

Let’s change your perspective on saving. We all know that saving is hard. It’s really difficult. In essence, thrift is about trading present pleasure for future gain, and this is advisable. By looking at your future and seeing it from a different perspective, you can encourage yourself to become a saver. Here are a few tips:

• Whenever you buy something of great value, divide the price by your hourly rate. ^[6] If you’re looking to buy $300 shoes, but you’re only making $12/hour, does that equate to 25 hours of work or more than half a workweek? Are the shoes really worth your hard work? Sometimes, it might be.
• Break down your savings goal into smaller goals. Instead of setting a goal of saving $5,500 per year, break it down by month, week, or even day. Think, “I’m trying to save $15 today and I will.” If you do that over the course of 365 days, you’ll end up with $5,500.