That’s how many articles and advertisements begin across the internet and other media platforms. Sadly, most of them are scams. Sure, they may have examples of a few people who have gotten rich. However, my plan is real, and it is based on something far more powerful and concrete than a few lucky guys who made millions starting an online business, or betting on the right sports teams and penny stocks.
It is based on logic. Logic that is beautifully simple and completely true.
Here is the two step secret:
- Spend less money every month than you make, no matter what.
- Invest the money that is left over.
I can hear my critics screaming into the heavens as they read over what I just wrote. They are saying something along the lines of “But that can’t be it! This must just be another one of those online scams! There is no way that a foolproof method of getting rich can be broken down into those two sentences!”
Sure, the details of following that simple outline may require enormous discussions beyond just those two sentences (I’ve published over 50,000 words on this blog so far, and I have hundreds of thousands more planned to discuss those little details). But the beauty of this is that while the small steps and details are extremely important and define how successful you are in building large amounts of wealth, as long as you follow those two steps like they are the law of the land, you will eventually build up large amounts of wealth.
To understand how this works, and why the details can be ignored at first, lets analyze both of the steps in depth.
First, spend less money than you make each month. This first step is critical, and is what the plan depends the most on. If you don’t do this, then the second step isn’t even possible. However, this is actually much easier than you’d think. Despite what many overly pessimistic people will gladly preach to you, anyone can increase their income over time if they are willing to put the effort in. Increase your income, and it becomes much easier to make the gap between your spending and income each month grow.
Of course, increasing your income isn’t the only way to do this. Decreasing your spending is oftentimes a much more immediate and powerful way to do this for the average American. Embracing a more minimalistic and frugal lifestyle can easily slash your monthly spending into a fraction of its former self. Do that, and all of a sudden you will notice that each month you have gobs of money left over. That’s right, you will magically have more money in your checking account each month, without fail. No matter what. Need I stress that more?
But what to do with that mountain of cash? Buy a Ferrari? A private island? A collection of vintage Pokemon cards signed by their creators? Nope. Instead, follow step two.
Investing the money you have left over each month will allow you to not only make sure that you don’t spend that money away on consumer crap, but also allow that money to grow exponentially. Through the beautiful power of compounding returns, you will see your money quickly grow into a massive, thriving beast that delivers additions to your net worth like clock work. You can check out this cd rates calculator to see how your investments can grow when using opportunities such as CDs.
Sure, there are a huge variety of investment strategies, and some work better than others. Many are low risk, while others are scarily high risk. You can experiment with stocks, bonds, CD’s, private company equity, real estate, and many other different investment vehicles. But the key here is that it really doesn’t matter how you invest or what in, but the mere fact that you do.
I have yet to see an investment strategy anywhere that historically has lost money on average. Nor would it make sense if there was, because no one would ever invest in it. The stock market (despite the recent crash) still makes money on average yearly. The United States government, despite its many flaws and monetary issues, will likely still be around 10 years from now, paying back the bonds it sells. As long as you invest your money instead of putting it under your mattress, that money will become more money, almost guaranteed. That is unless there is a zombie apocalypse, in which case the value of your Facebook stock dropping probably isn’t your biggest concern.
So now that we’ve established the base logic behind why this simple two step plan will make you rich, let’s look at some examples.
First up, we have John. John decides to follow the above rules like his life depends on them. He doesn’t have a high paying job, merely an average one paying around $36,000 per year after taxes, or $3,000 per month. He is struggling to increase that income, but is trying his best. He also begins living a more frugal lifestyle, spending only $2,000 per month. That means that each month he has $1,000 left over, which he invests in an index fund and receives 8% annual returns on average. We’ll look at what this does for him in a bit.
Next up, we have Joe. Joe decides that I’m full of shit and my rules are too boring. He instead opts to follow some other get rich quick schemes. He quickly uses a variety of techniques to make money quickly, ranging from penny stocks to online marketing to selling baseball cards found at garage sales on eBay. His little schemes net him some money on occasion, but it’s never consistent. In fact, there are times when he has to move back in with his parents because he hasn’t had income in several months and lacks any sort of emergency fund. But there are times when he wins big, making hundreds of thousands of dollars because he basically got lucky. But as soon as he does, he blows it all. “I earned this money, I can spend as much of it as I want” he thinks. He sure can, but twenty years later he finds himself with a net worth of only a couple hundred bucks. In other words, he is completely broke.
Now back to John. He spent the last twenty years investing $1,000 per month, and ignored the tempting call of get rich quick schemes and lottery tickets. How much does he have now? Well, according to a handy dandy compound interest calculator, he has more than $590,000 dollars! But that can’t be right! He didn’t bet big on anything, or follow any plan other than my two overly broad rules that really don’t mean anything! After all, such simple things couldn’t allow someone who brings home less than $40,000 per year to accumulate more than half a million dollars in just twenty years, right? Wrong. Following those two rules is the ONLY WAY that such a thing could have happened. And they can work for anyone.
What about after 30 years? 40? $1,468,150 and $3,357,372 respectively. That’s right, someone who makes that little tiny salary can end up a multimillionaire! Now, can you imagine someone who earns more? Let’s say Bob is bringing home $10,000 per month, a very fancy, high paying job indeed! Yet he only spends $3,000 of it on average, investing the rest in the same index fund as John. After 20 years, he has accumulated $4,151,525.40. And after 40 it’s close to 25 million dollars! Now that is what I would call rich.
Now sure, you have to take inflation into account, and there are all kinds of other small things that critics will claim invalidate what I just wrote. But the logic still remains, and I can’t see anything changing that for years to come. If you spend less money than you make and invest the rest, you will end up rich.