Tag Archives: getting rich

It’s Expensive to Pretend to Be Rich

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In broad terms, the most common goal for most people is to save money and get out of debt. It costs a lot more money to pretend to be rich, than to actually become rich. There isn’t a difference between a $40 pair of jeans and one that costs $400. Except one thing. When you know what that is, and how important that difference is to you, I can predict your financial destiny.

Pretend wealth means the latest, greatest whatever. Whether it’s fashions or the newest gadget, cars, shoes, or sports gear. It also means these things need to be replaced every season, or with every new model. That gets very expensive. My iPhone 7 works fine – but there are millions of people who had two or three version of iPhone 14 and can’t wait for the 15 to come out.

That’s money spent that can’t be saved in just keeping up. No, you won’t take every dollar you save on skipping one season’s fashions and put it into investments. You’ll read that from some people, but it isn’t real life. But saving $200 to $400 a month builds wealth. It’s not flashy, nobody knows it, nobody can actually see it, but it’s real and it’ll grow and grow.

You’ve heard and read the sentiment of pretty much resenting the “top 10 percent,” or that the top one percent keep getting richer. Well, it’s kind of unfair. Most of those people skipped the “gotta impress people” stage and started saving. Years later, their investments grew to hundreds of thousands of dollars. THAT is how they keep getting richer while the image-people keep spending and going broke.

Yes, the top 10% have it made. A $50,000 investment that took years to build will grow $5,000 or so every single year on auto-pilot. The image people spend that a year on credit card payments. It’s not a fair fight or comparison..

Someone on Facebook with me lives in a winter city. He started Facebook posts in September when he bought a super-expensive exotic sports car. Hundreds of likes and comments every month or so. I bet those people are really envious. Well, it turns out it’s a three-year lease at $1,300 a month. He’s still re-posting pictures of it every few months to keep getting the bang for the impressing-you buck…even the six months he can’t drive it.. For vast numbers of younger people it’s more and more escalated on Instagram.

In three years, this guy has to return the rented vehicle, or pay the lease buyout with another loan. He’s out $50,000 or so in payments…but has hundreds of FB likes and people who are super impressed…versus the $50,000 in investment…There’s a difference – a big difference.

Three Must-Do Tips for Any Grad

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Ah, it’s grad season for two groups: those graduating from high school and heading into the work world or university, as well as those just now graduating from university.

When I ask any adult when they were last debt free, the answer is almost always that they haven’t been debt free since they were your age. When they were 18 or 19 – and they’ve been in debt since then. Sad but true – that will be you.

Getting wealthy comes much easier if you learn to say “I can’t afford it,” and spend less than you earn. When you were still in high school, you probably had a summer job or other income. You worked hard, had a goal of what you wanted to do with that money, saved like a dog, and paid cash for stuff. Plus, because you had so little money, you were careful how you spent it, right?

But now you have a paycheque, and access to borrowed money, which includes student loans and a credit card. So you’ve forgotten how to get rich already and you’re just getting going. Let me remind you again and maybe, just maybe, you’ll do these things to actually get rich, instead of just making that your 40-year dream:

Pay cash for stuff

Don’t buy crap you can’t afford and don’t need

Save and invest ten percent of your money

Maybe someone in your family will print this out for you. Maybe someone cares enough to go over to Mosaic and get you the Money Tools book. Maybe I’ll see you at the top, or maybe I’ll get an e mail from you in five years or so to help you with some of your financial mess.

If you’re graduating from high school, it’s a valuable investment to establish credit. Read the chapter on how to do that and the credit card chapter to understand the rate, perks and limit traps that you’ll be dodging a lifetime.

Plus, leave your credit card at home – don’t pack it in your wallet. The first time you charge a consumable such as gas or food on your credit card and do not pay it in full when the statement arrives you’re in financial trouble – you just won’t realize it or admit to for a long time to come. From there, it’ll just get worse. Miss paying off your balance and it’s twice as hard the following month when the balance has likely doubled. Then, the credit card companies have won, and have you hooked for the next few decades.

If you’re just graduating from university, I bet you’re sick of living like a poor student and ready for some major pent-up spending. The biggest financial damage is done in the first year following graduation. Get the job, get the paycheque, but if you can delay gratification and live like a poor student for one more year, you’ll have an incredible amount of money saved in that year. Once you turn on the spending tap you aren’t going to be able to turn it off again – so just delay it one year.

The question to always ask yourself is: What financial thing can you do today that your future self will be incredibly grateful for?

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Investing Lessons…The Hard Way

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Two more quick thoughts for your 17 to 22-year olds from what we talked about last week.

Becoming financially successful happens from two sides: The savings side, and the borrowing – or not borrowing side. If you want to be rich, it’s a no brainer to study the habits of rich people, right? Well, the Fortune 400 richest people can teach us something we already know. To start, of those 400 richest people, 90% started with nothing – so it’s not inherited money, but rather earned on their own. For these people, 75% shared that the number one way to get rich is to pay off debt and to stay out of debt.

Of course, the best way to actually have money is to not pay it all out every month in interest and bills. That allows you to save. For students, there is a story on how to be a millionaire at age 20 by just saving $10,000. It’s on my web site – a story we did last year.

When you have money – you can invest and watch it grow… if you choose not to gamble with it. Investing is a five year or longer time horizon, and not a one-off stock or investment. It’s long track record, good growth mutual funds and the likes.

Want proof? The two so-called hottest things in investing have been gold and the Facebook, or some other IPO from the tech industry. Well, let’s see how that’s been going:

Gold yesterday went below $1,600. Now, I had said it’d be half of its high of $1,950 or so within two years, and it’s well on track. Just listen to some of the hype about gold and gold stocks. It’s been insane, and you have to know a ton of people invested with borrowed money. That’s now a double hit that will wipe out a ton of their money AND have them paying interest to add insult to injury.

Friday’s launch of Facebook stock is another great example of gambling versus investing. It’s a one-off stock. That’s way too risky for anyone of us to gamble on! The stock came out at $38. That’s what institutional investors got it for in advance. When it came out, the first few hours the stock went up. Of course it did – the almost always do. That’s individuals now getting their first chance at buying it! How do we know? On the first day every stock issued was bought and sold more than once.

So who was selling if individuals were buying? All those institutional companies who got it in advance and wanted out! You can’t buy a stock if nobody is selling! Those companies sold because they knew things you and I didn’t: During their road show of convincing these investment companies to buy the stock they reduced the forecast for Facebook profits. They also gave these institutions more stock than they thought they’d get allocated. Why? Because there wasn’t enough demand. That was a BIG warning flag for those companies to dump it quickly, and you and I didn’t have a clue.

So within a few hours, the stock was back down to its original price. By yesterday it was down to$33 from $38. Any hype to get in right away because you didn’t want to be left out would quickly have died. Today it’s at almost a 15% discount and some think, when you compare it to Google’s profits vs. price it ought to be a $10 stock.

Today you have that knowledge in hindsight. But by today you’d have lost your shirt. Don’t do it – stick with mutual funds managed by people who are on the inside and not reading about it two days late.