Summary
This is the first and most important tutorial on this site. It’s the one where I teach you, very simply, how to get rich. Let’s get straight to it.
- Get a good-paying job
- Save half your money for 10-15 years
- Buy good companies at great prices to start growing your savings
In 12-15 years, you should have your first million
There, told you I’d keep it simple. It’s really not more complicated than that. As a finance/investing expert, I can assure you this is the easiest and most straightforward way of getting rich. Heck, it’s possible you’ve got a few neighbours, friends, family members, colleagues, or acquaintances who have already done this.
1. Get a Good-Paying Job
This one is pretty self-explanatory, isn’t it? You want to aim for about $100,000/year in after-tax earnings, ideally, but it’s all relative. In the West, there are many careers that can get you this kind of money, especially in the STEM fields (science, technology, engineering, and math). Healthcare, energy, business, agriculture… If you’re willing to work hard and learn, you can make twice that amount or more in oil and gas, without even a college education. I’ve got plenty of friends from small-town Saskatchewan who have gone that route.
2. Save Half Your Money
This one requires the most discipline, of course. It’s easier if you’re in your twenties and you haven’t gotten used to having lots of money yet. Maybe you’ve been enjoying yourself in college and living frugally. See, you can enjoy your life without spending a fortune. You don’t have kids yet, and no one expects you to be rich or have fancy vehicles at this stage, so it’s the best decade to get started.
Basically, simple math, we’re trying to save $50,000 a year for 10-15 years. If you can do this for 10 years, you’ll have $500,000 even if you just put it in your chequing account at the bank and leave it there. You’re halfway to a million. 15 years of this and you’re at $750,000 without even investing your savings.
You can do it. Pay yourself first. Set monthly goals. The easiest way is to put all your expenses on your credit card, and try to keep that bill below $2,000 a month, and (of course!) pay it off in full at the end of every month. If you have $2,000 in fixed expenses and a $2,000 credit card bill, that’s $4,000 a month or $48,000 a year. If you make $100,000 after tax, that’s $52,000 in savings every year.
3. Invest Your Money so it Grows
Now for the fun part–generating passive earnings on your money, and watching it grow. All rich people have passive income on the side, full stop. You’ve got to invest your money, so you’re not trading your own time for money, for your whole life.
On this site, I’ll be recommending buying companies, not real estate, but each has its place. One day you may own your own home (I hope), so you’ll automatically have a real estate component.
Let’s keep it conservative and aim for a 7% real rate of return (i.e. after subtracting inflation). In normal times, that’s about 10% before subtracting inflation of 3%. I’ll have more to say about inflation in the future, but for now let’s do some math and see how we can turn your savings into your first million. Simple finance.
The above image shows very simply how you can turn your savings into $1 million in 12 years, if you save $50,000 a year and earn a 7% rate of return. It’s really that simple, in terms of the math. Each year you save $50,000, and use that cash to buy companies; then those companies earn you a 7% rate of return. Over the long term, that’s a realistic rate of return for a diversified portfolio of companies (i.e. stocks or shares on the stock exchange).
If you want to download the simple model (Excel spreadsheet) above, here’s the link to do so.
You Can Stop Saving After Year 10
Here’s something exciting: Notice that in year 11, your investment return (your beginning-of-year savings multiplied by your investment return) is actually greater than your annual savings! Your companies are doing your saving for you! At this point, even if you completely stopped saving money, as long as you don’t sell your companies, they’ll continue making money for you, indefinitely. That’s the magic of investing and compound interest. You start the ball rolling, stay disciplined for about a decade, and after that your money does the work for you. Personally, I find that very exciting and empowering.
By the way, there’s a reason I refer to them as companies and not stocks or shares. I’ll have much more to say about this later, but in short, referring to them as companies avoids any confusion or intimidation you may have about the stock market. My number one investing tip of all time is: if no-one else in the world wanted your company, would you still want it? In other words, if you owned 100% of the company, would you be happy with that company’s current and future profits? Thinking of them as companies (which they ARE!!) and not “stocks” (which conjures up images of stock price charts going up and down) will give you a HUGE advantage in your investing. Similary, I rightly call it “investing”, not “trading”… We buy companies and they make us money. Their profits are our profits. We don’t buy and sell continuously, trying to “time the market”… We invest.
Hopefully that’s enough to get you thinking, dreaming, excited. I hope I’ve shown you that getting rich (i.e. getting your first million) is actually pretty simple when you break it down. Anyone with a little work ethic and some patience and discipline can get there, and I hope this inspires you on your own path to financial independence–the ultimate freedom in this world. 😊
What to read next: How to get started investing
Cheers,
Sean
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