We’ve all seen the million and one tips on living frugally.
“100 more ways to save money frugally”,
“Be frugal and make your own toothpaste and soap to save a buck”,
“The only way to save money is to be extremely frugal and sell your kids”.
Seriously, sometimes living frugal can go waaaaay to far.
Those frugal living tips have nothing to do with how you can become rich.
You know what sucks? Doing all those “money-saving frugal tips” and you’re still in the same place.
You’re still broke, you just have a lot less time since you wasted a whole weekend making a gallon of homemade laundry detergent.
Don’t get me wrong – I love natural products but did you know you can just BUY natural products already? You just wasted a ton of time, and you saved $2.
You could maybe go buy some ice cream with that.
Have you noticed that most of the people who are religiously frugal don’t actually gain a better financial life?
Being frugal is NOT how you become rich.
There’s a difference in being “extremely frugal” and just simply monitoring your spending.
Now you’re totally frustrated because you’ve wasted so much time on Pinterest and Facebook trying to find new ways to save a couple bucks and you’re just dying to know how to become rich.
For real rich, not the “frugal rich”.
No more B.S. No more making your own laundry detergent (seriously, if you want natural soap just go buy it).
You don’t want to stress about your financial future anymore.
You want to be able to eat at that fancy new restaurant on date night and not feel totally guilty about spending that much money.
I’m going to tell you the exact things that will help you to become rich and achieve those financial goals you have – like buying your first home.
(I think I’ve established this, but just to be sure – being frugal does NOT make you rich.)
1 – Invest Smarter (and easier)
Ask anyone who is a self-made millionaire and 99% of them will tell you that they’ve invested their money into a retirement.
Whether it be their 401K, or another account, they have money there. And A LOT of it.
What type of retirement account should you invest in?
You need to invest in a Roth IRA. Like today. Seriously, right now.
A Roth IRA is literally just a retirement savings account with high interest. (Like, really high interest. Not the $.60 cents you get back from your bank savings account. )
Let me show you just how much interest you’ll get back.
Say you start off with $1,000 dollars in your Roth IRA starting at the age of 28.
Every year you contribute $5,500 (the max amount you can contribute).
Some years, you may contribute a little less but for the most part you stay pretty close to $5,500.
If you decide to retire by the age of 65 and have an 8% rate of return (that’s the average percent of Roth IRA’s) you will have $1.23 million dollars in that account.
That’s how you become rich.
Maybe you’re starting at 30 years old – you’re still at $1.04 million.
What if I already have a 401K?
According to numbers from Fidelity, the average amount in a 401K from age 60-69 is $167,700.
Please, continue telling me why you don’t need a Roth IRA.
Seriously guys, don’t retire with less than a million.
401K’s don’t make you rich (and most of the time not even a millionaire) unless you have an extremely generous employer and very high salary.
If you want to find out more about Roth IRA’s you can check out this post that I dedicated about these millionaire-making accounts.
Another investment potential (after you’ve started your Roth IRA) is real estate.
Be smart when buying a home.
Having the opportunity to capitalize on real estate investments could be for you if you don’t mind putting in a little bit of work. (I still think the Roth IRA sounds MUCH easier!)
2 – Increase and diversify your income
This always sounds like a no brainer. Obviously everyone’s trying to increase their income. But, are you doing it the right way?
When was the last time you asked for a raise?
Have you recently looked at other companies hiring for your same position and their starting wage is?
At the end of the day you’re just trying to support yourself and your family. Have a better life, travel more, eat out more (like I don’t already eat out enough).
The people who get paid the most typically don’t work harder. They work smarter. Like asking for raises and being aggressive to find competing positions.
The American Dream is all about having your business. Owning a business is hard. But thanks to Google, they’ve made it a whole lot easier.
One of the best ways to increase your income is to do something you’re already good at.
Are you an amazing tutor?
Or, guitar teacher?
Do you love fitness or health?
Maybe you love giving people money tips.
Whatever it is you’re good at, that’s how you will increase your income.
For me, it’s telling people how to become rich. I started a blog and now I make ACTUAL money from selling my budget planner.
You can start coaching people on fitness, home repairs, cooking … seriously anything you’re good at and you love.
You’d be surprised to find out how easy it is to increase your income.
What can I do with my talents/hobbies to increase income?
Start coaching/tutoring others who want to learn your talent.
Write a book.
Start a blog and make money selling your own products.
Do side work of what you’re already doing. For instance, my husband is an electrician. He will sometimes make more money doing side jobs than he does at his every day job.
You can’t wait for life to you throw you a dream job, dream home and money to throw on the street.
The people who go out there and do something to change their current situation, typically end up in a much better place than they were before.
3 – Create a budget. Remember, this is NOT a frugal budget.
We’ve all made some pretty dumb money moves.
The people who become rich have a plan for their money. (And it’s easier than you think).
You’re not giving up anything. All you’re doing is tracking how much you’re currently spending.
Then you can make a plan of where you want your money to go every month.
You can always increase your income – but it’s proven that once your income increases so does your spending. Having a budget helps you track it.
Trust me, I don’t miss out on anything by having a budget.
4 – Start an emergency fund.
I started my emergency fund at $1,000 dollars because that’s all we could afford to do at the time.
Just a month after we funded that $1,000, we hit a giant pothole in our car and it ruined the rim and blew the tire.
Not only did we have to get a new tire, but we also had to get a new rim and get it realigned.
When I went to the guy and told him, “Umm, excuse me, this isn’t in our budget,” he didn’t seem to care.
If we wanted our car fixed we had to pay, and I was sure thankful that I had an emergency fund to save my butt!
General rule of thumb for emergency funds from Dave Ramsey – start with $1,000. After all your debt is paid off (not including the house) save up 3 to 6 months of your expenses.
Having to continually pay for dumb things that come up isn’t going to help you become rich.
Start your emergency fund.
5 – Stay out of debt.
If any of you have listened to Christ Hogan, he’s proved in his millionaire maker book that the fastest way to make a million is by NOT having any debt.
This includes not going into debt for your car.
Millionaires do not become millionaires by buying brand new cars.
They become millionaires by buying used cars that they paid for in cash, then later bought a new car with all the cash they had saved up.
Speaking of debt, stay away from credit card debt.
I get you like it for the rewards points. So does my husband. When he found out about Amazon’s card it was like Christmas morning.
I was actually pretty upset when I found out he got the Amazon card first, because he didn’t talk to me about it beforehand. And second, because I just don’t like credit cards.
I don’t use them and I honestly don’t trust myself AT ALL with them (impulse buyer).
So, we made this deal – as long as he pays off all the purchases we make on the credit card right when we make them then I can handle it.
For right now it’s been going good and that works for us.
Just remember, if you’re buying it on a credit card you probably don’t need it.
And if it’s an emergency then use your emergency fund!!!
6 – Keep your mortgage affordable
One of the things that is nearly unavoidable for the average joe is having a mortgage. BUT – having a high mortgage you can’t afford IS avoidable.
DO NOT purchase your home for the max amount you can.
There’s a reason that’s your max, because going a little bit over would be the tip of the iceberg for you financially.
What happens if you have a sudden added expense with that hefty mortgage payment? You’re screwed. (Unless you have an emergency fund … yay for you for being prepared!)
7 – Stop focusing on how to become rich and find out WHY
I’m not ashamed to say that I want to be rich.
I want a nice house.
I don’t want to have to worry about money or what we’re going to do when we retire.
I want our kids to have amazing experiences traveling to different cultures.
There’s a whole lot of things I want, so that means there’s a lot of things I can do to make that come true.
Why do you want to become rich?
Do you want to retire early?
Do you want to finally get that dream home?
Maybe you want to pay for your kids college and take your entire family on a cruise every year.
Having something specific that you are working towards will make it even easier to make those smarter money decisions.
When having a financial plan you’ll realize you’re closer than you thought to achieving those goals you have.
You may want to stay in the “extremely frugal” group and pretend that that is really fixing the problem. But, it’s not.
The sooner you do, the happier you will be.
No one has ever regretted changing their money habits, getting out of debt, having an emergency fund and going on a family trip to Bora Bora.
I can strongly say that you won’t regret that either.
Remember, just buy the freaking soap.
Don’t waste time making it just to save a penny. Use that time to work on really becoming rich.
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