The secret to getting rich is as powerful as it is unexciting: live below your means.
That’s it. The bigger the difference between what you earn and what you spend, the sooner you’ll find yourself with enough money to do what you want with your life.
This is from an excellent short piece, “The Boring Secret to Getting Rich,” by Catherine Hawley.
She also adds that to say that it’s unexciting is not to say that it’s easy. For me, however, it was easy. I grew up with so little that it was not hard to save once I started earning what I regarded as a high income. I was never tempted to go through catalogues (remember those?), picking out things that I wanted and ordering them. Instead, I would do what I did as a youngster: go through catalogues, see things I wanted and fantasize about them, and then not buy them.
The only thing I would have added is that it’s a way to get rich slowly.
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READER COMMENTS
Charlie
Mar 24 2016 at 12:48pm
Milton Friedman use to tell incoming professors, “don’t save too much.” http://freakonomics.com/2008/07/01/when-it-comes-to-saving-who-would-you-listen-to-my-wife-or-milton-friedman/
It does beg the question, why fid you want to be rich? Lifelong bequest motive? Did you want to move your consumption to your aged years? Some other motive?
Jon Murphy
Mar 24 2016 at 1:23pm
To that point, I like the advice Kevin Hart gives: stay in your financial lane!
sam
Mar 24 2016 at 3:47pm
I saved because I didn’t want to wait until I was old to retire.
Pedro Albuquerque
Mar 24 2016 at 5:15pm
A hedonist would argue that there is a huge difference between ending life financially rich and ending life rich in enjoyable experiences. You can pay $100 for a bad bottle of wine, $10 for a good bottle of wine, or $2 for sugary water. Epicurean discernment is not the result of hermetic or innate knowledge but a concerted effort to achieve it.
David R. Henderson
Mar 24 2016 at 6:53pm
@Charlie,
Milton–and his pal George Stigler–gave me a shorter version of that advice in the Narita airport in September 1978.
To answer your question, I’m substantially richer than I had planned to be 25 years ago. Two things happened: (1) the U.S. government has not seriously reduced Social Security payments for wealthy and/or high-income people and I thought that would’ve happened by now, and (2) the stock market rose much more than I expected.
On top of that, it was easy not to buy things. Two-buck chuck is pretty good wine. I can’t think of any thing we’ve done without that we really wanted. Could I easily put $50K into improving my cottage in Canada? Sure. But to go there for 2.5 weeks every year? Not worth it. Especially when overseeing such a project would take at least one of those 2.5-week vacations.
Finally, I’ve always wanted independence. I wanted to be able, if I saw something corrupt that I just didn’t want to live with, to quit my job immediately, for example.
Noah
Mar 25 2016 at 10:48am
A good plan for people who earn beyond their needs.
Fred Anderson
Mar 25 2016 at 9:35pm
Another, fairly common, piece of advice is to make use of payroll deductions into savings; “Pay yourself, first.” Much easier to not spend it if you never see it.
How much you can save may be remarkably large. Something like a billion people on our planet are still surviving on $3 per day, so if you had the will power (but who has that kind of will power?!?) you could earn minimum wage and still squirrel away over $13,000 per year.
Which goes back to Charlie’s question, “Why did you want to be rich?” My own answer was for protection against the unknowns of old age.
Mark Anderson
Mar 26 2016 at 4:21pm
As far as I am concerned, the key is not to be rich so much as to be free from financial risk. I do not panic if my car breaks down, or I lose my job, or the price of insurance rises. I’ve known lots of people for whom these things do cause panic. I have enough savings to get me through those issues, and I would hate to live in constant fear of financial reverses.
Erin
Mar 26 2016 at 5:06pm
@Fred
In one sense, I agree with you. A person doesn’t have to bring home a large paycheck in order to save. A person regularly saving small amounts of money from fairly young age can see the benefits of compound interest. A person who starts saving later, even though they may be regularly contributing somewhat larger amounts than the other person, probably wouldn’t see the same benefits from compound interest in their situation.
But on the other hand, have you tried to live independently (meaning: responsible for housing, transportation, health insurance and food expenses) in the United States on the federal minimum wage during any time in last ten years? Neither have I, and I can’t imagine how a person earning the current minimum wage could afford to live independently in the US and sock away $13K a year. A person earning the equivalent of the US minimum wage living in a developing country might have an easier time accumulating wealth. In most cases, the cost of living is dramatically lower in developing countries compared to the US.
Floccina
Mar 29 2016 at 2:16pm
@Erin
http://earlyretirementextreme.com/how-i-live-on-7000-per-year.html
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