Personal Finance

The 3 Steps to Become Richer… That Most People Never Follow

Photo: Wikipedia

If you’ve always wondered what the steps were to becoming rich, it’s actually quite simple. In fact, you might already know them.

The trouble is… even though you know them, you might not actually do it.

So what are the 3 steps?

  1. Earn income
  2. Spend less than you earn
  3. Invest

That’s basically it. I told you that you might already know the three steps.

So do you actually practice them?

A lot of times people think that the key to getting rich is to simply earn a LOT more money.

“If only I had an extra $1,000 a month.”

It’s very easy to think that just by making or having more money, all our financial worries will disappear. But that’s not true. And the reason is because for most people out there, making more money simply gives an excuse to start spending more — it’s called lifestyle inflation.

Have you ever got a $500 raise only to start blowing your extra hard-earned money on new clothes, bags, watches, restaurants, and entertainment? Not only that, you justify your spending by telling yourself you deserve it. Because you’ve worked so hard and “I should be allowed to indulge myself”.

Now don’t get me wrong. It’s perfectly fine to reward yourself when you receive a nice raise or achieve a financial goal. But if you increase your spending every single month to “reward yourself” then you’re back at square one. You’re making more money but you’re not any richer.

You see, even if you make twenty thousand dollars a month but you spend twenty thousand dollars every month, you’re still BROKE. It doesn’t take a math genius to know that you need to spend less than you earn in order to grow richer.

But Spending Less to Save is Not Enough

The reason is quite simple — inflation.

As inflation rises, the amount of goods/services you can buy with the same dollar decreases. The average rate of inflation in Singapore is about 4% a year. That might not seem like much but in 30 years, every dollar you save now will only be worth thirty cents. That’s why saving alone will not make you richer; every year that inflation rises, you get poorer!

And if the eroding value of your money isn’t bad enough, Singapore is already the most expensive city in the world according to the Economist Intelligence Unit — for the second year running:

expensive city

Source: The Economist

Which is why the final step – invest – is probably the most important step of all.

5 Reasons Why Investing is So Important

We all hear that investing is important but here’s exactly why:

  • Your income is limited if you do not invest
    As a worker whose income is tied to the number of hours you work, the only way to make more money is to spend more time working for it. But no matter how hard or long you want to work, there’s a cap to how many hours you can work in a day. Pretty soon you’ll hit a physical limit that no one can overcome: There are 24 hours in a day and you need at least half of it to sleep, recuperate and watch viral cat videos on YouTube.
  • Investing gives you potentially unlimited, passive income
    Unlike being tied to a job that makes you trade a finite resource, time, for money, investing gives you the ability to make unlimited passive income. The more you invest successfully, the more wealth and income you’ll make. There’s virtually no limit to how much you can make. And because it’s your money (instead of you) working for you, your investments will generate passive income for you whether you’re enjoying a holiday, sleeping or watching viral cat videos on YouTube.
  • You can’t work forever, you know
    As young, hot and virile as you think you are right now, there will come a time when you look as attractive as a bucket of smashed crabs and you can’t physically work anymore. If you didn’t invest, the moment you stop working is the moment you stop making money. In other words, you need your investments to provide you with passive income to fund your living expenses when you retire.
  • Invest with inflation
    Rather than let inflation eat away at your wealth as a saver, why not let inflation help you as an investor? As prices of goods and services rise year after year, so do the sales and profits of the biggest companies in the world and in turn their stock prices. That’s why the stock market index always rises in an inflationary environment in the long run.
  • Compound interest
    This is probably the most common reason you hear about why you must invest. Compound interest is basically “interest on interest”. Did you know that if just set aside a hundred dollars a month and invested it at 20% per annum, you’ll have $1.38 million in your pocket in thirty years? Does that surprise you? That’s the power of compound interest and why even just saving one hundred dollars a month can make such a huge difference in the long run.

Ok, so we know we must invest.

Now the problem is: How do you pick the right investments (stocks, etc.) that will give you 20% returns on average every year?

If you’re interested to know the answer to that, then we’d like to invite you to discover what’s really working in the investing world and how you can identify the best stock investments that will grow your money year after year…

Here’s how you can get started on investing:

[**New To Stock Investing? Get This Quick Start Investing Manual That’ll Show You How Anyone Profit From The Stock Market- Download Quick Start Investing Manual**]

If you someone who’s yet to invest, NOW is the best time to get started.

Like the ancient Chinese proverb says:

“The best time to plant a tree is twenty years ago, the second best time is today.”

Adam Wong

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller's List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

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