How You Can Become Wealthy

Wouldn't you like to know the secret of becoming wealthy? Well, thanks to Money Central, we now have some scientific information on this subject  (see the bottom part of the article).

First, some key findings:

• There’s a huge variation in wealth at every income level. Many low-income families have almost nothing. But the same is true of many high-income families.
• Income alone doesn’t explain wealth disparities. Some of the lowest-earning households had managed to accumulate significant wealth.
• In fact, income differences explain just 5% of the wealth dispersion the researchers found.
• What the researchers called “chance events” -- inheritances, medical bills, marital status, number of children -- explained about 4% of the dispersion.
• Investment choices explained about 8% of the variations.
• In other words, the vast majority of the differences in wealth had nothing to do with income, chance events or investment choices.
• What did explain most of the differences in wealth? Venti and Wise concluded it was this: How much the families chose to save. Those who made it a priority to save built wealth, regardless of their income level, individual circumstances or choice of investments.

Let's re-read that last sentence again:

Those who made it a priority to save built wealth, regardless of their income level, individual circumstances or choice of investments.

This is a pretty revolutionary finding. But it's good news for us all. We can control our wealth (net worth) simply by choosing to spend less and save more. Income level, inheritance, and investing (all of which are harder to influence than saving) account for little when it comes to net worth. It comes down to spending less than you earn and saving the difference.

Good news indeed.

Comments

[Alexander Barbara]

No offense, FMF, but is it really that revolutionary?

If any of your readers truly commit to becoming millionaires, they will eventually become them. That's just common sense. And that's precisely the principle that Napoleon Hill, Donald Trump, and many many others teach.. :)

[FMF]

Based on my experince, this is a revolutionary thought for many (maybe not for you, but it is for most people -- at least the ones that have come to me for advice).

Most people think/assume that you have to have a large income in order to ever be wealthy. This is simply not the case. Hence, it's revolutionary (or at least surprising). ;-)

[Alexander Barbara]

Fair enough. I guess I just have been thinking that it makes sense. If you want something bad enough, you can do anything.

By the way, the site is fantastic. Bravo. :)

[Jeff Niederkorn]

I purchased a house in 1999 for $139,000.00. The house is worth $480,000.00. I have paid off $50,000.00 in principal on the house the last 6 years. This house has been modernized and is in great living condition near all. Can anyone tell me if I should purchase another house and rent this one out? I am new to investment strategies and believe this would be an excellent move for tax write-off purposes well as all the other pluses. Any recommendations would be appreciated. Thanks. Jeff

[FMF]

Anyone have any advice for Jeff? I know what I'd do if it were me, but I'm not so sure that's the right move for him.

[TJP]

I completely agree. Saving is important, but if your savings aren't placed in a high-yielding account like an online savings account or mutual fund, you'll actually lose wealth due to inflation. Have you ever done any studies that inflation in account? I would love to see an article if one hasn't already been published. Thanks.

[Kenneth M Monahan]

This is the greatest secret of wealth-building besides the one called "compound interest." In 1995, when I was earning $6200 per year, I determined to stop spinning my wheels and increase my net worth from $4000 to $5000. In that year I actually saved $5000! I eat pasta three times a day and ride my bicycle to work. Since then, my income has risen into five figures, but I continued to save over 60 percent of my income and my net worth is on track to reach seven figures in a few years. I believe that one of the greatest impediments to wealth-building is the SUV. It costs more money than necessary every time you turn the key, or buy tires or oil, and it forces up the price of gas, which means everybody pays more for everything, not to mention polluting the air, wasting preciouss resources, blocking drivers view of the road, backing over small children, and rolling over.

[Craig Gardner]

One of the best ways to ensure that you live below your means is by giving regularly. If you give the first 10% of your income, it puts a lid on what you can "afford" to spend. If also changes your attitude toward yourself and others. By the world's standards, Americans are quite rich. We really don't need all the things that are pitched to us everyday on TV, the radio, and newspaper ads. Giving to others first keeps that in perspective.

[The Deprived Investor]

It's true....just save money to become wealthy. The key is to put Savings in your budget as one of your bills....something you HAVE to pay each month....and pay yourself first!

[NED]

I AM 43YRS,MY NETWORTH IS IN NEGATIVE AS WE SPEAK.YOUR ARTICLES ARE OF GREAT HELP BUT I NEED A GREAT GAME PLAN AT THIS TIME ANY ADVICE.

[FMF]

Ned --

Here's a game plan that should work for you:

http://www.freemoneyfinance.com/2006/08/the_10_best_mon.html

[Toure]

I always wanted to be rich some day and now by reading your post I know it never to late to start saving. I guess if I have save only $200 a month I would be very far right now. Thanks for the tips, no actually for waking me up.

[dantown]

I got rid of my TV about 12 years ago.So I don't get any sales pitches except on the radio,the newspaper,or mailbox.According to FinanceFreak.com,if I save $600 a month for 15 years(180 months)and earn 24% a year-a mighty big,not impossible return-I will have $1,000,000.00, which will have a buying power of $600,000,in 2022.By the rule of 72,that is a double of principle every 3 years...Total invested is $108,000.$600 per month equals a car payment of $368,plus NO latte ($4*22)equals $88,plus Plus NO McDonald's ($4 *30)=$120+$14 miscellaneous=$600 saved,and invested.Just a crazy idea.24% is a really large return,and perhaps impossible,and perhaps illogical.I earned 40% on croc's (CROX)back in May 2007.I know this sounds improbable,but...I'll see you in 15 years?

[Jennifer]

Toure, let me know when you find that investment with the 24% return!!

[dantown]

How to become wealthy.
1)Put the TV out by the dumpster.
Drive over it with your car.Watch out for kids and derelicts.
2)Write down every thing you spend for 4 weeks.Lose the $4.00 coffee=$88.00 per month.Lose the cable=$70? per month.I never had cable.What do they charge? Lose the $5.00 lunch=$110.00 per month.
3)Lose the cell phone.$39 per month?
4)Save $500 per month for 10 months.Buy a 1995 Audi A6 wagon.For cash.A fine vehicle.Save $150 per month to pay for repairs.
5)Rent a $500/month apartment(in Colorado,600 sq.ft.).As opposed to $450/mo.PI,plus $120/mo.HOA ,plus $50/mo tax,Plus "special assessments".plus insurance $50=$670 for a condo.Renters save $170,plus $50/mo. incidentals.
6)Embrace the Ramen.Japanese eat ramen every morning with little ill effects.Add 8 ounces vegetables=2 servings of vegies.
7)Read Investor's Business Daily.As a civilian-this paper is a right-wing capitalist newspaper.Ignore the right-wing part.You will make money just by reading and absorbing it.Warning:IBD is about investing in growth stocks that go UP!

[TeaspoonFinance.com]

New to blogging and don't seem to have the trackback thing working with blogger. Added a blog about this post "Great Finance Blog Post - How You Can Become Wealthy" at www.teaspoonfinance.com. So, wanted to stop by and let you know I really liked this post. It's funny how many times I hear folks say that they just haven't started saving to their 401K or even halted savings all together. Usually, because they have too many expenses right now. Yea, it seems obvious, but obviously everyone doesn't get it. So, I'm encouraged that my efforts to get any friends or loved ones started on the right track, can pay them huge dividens when it kicks in. I'm glad someone prodded me, long ago.

[Minimum Wage]

Dantown:

1) Got rid of my TV five years ago.

2) Got rid of cable 10 years ago. Never did the $4 coffe or $5 lunch.

3) I've never had a cell phone.

4) Got rid of my car five years ago.

5) Got one of the cheapest places in town. I put an inordinate amount of time and effort into finding affordable housing.

6) I live a pasta, rice, PB&J lifestyle.

7) I have read IBD, but it hasn't done a thing for my bottom line. What good is reading it if Ihave no money to invest?

[Minimum Wage]

I bet homeownership has a lot do do with wealth accumulation.

Homeowners on average spend a much lower percentage of their income on housing than renters pay, and this percentage tends to decline over time.

When you're paying 20% more of your income on housing than the homeowner next door, it should surprise nobody when he builds wealth and you don't.

[EMF]

Minimum Wage:

There's something else you could do to save money.

Sell your computer and get rid of your internet connection.

[Dr. Artfredo C. Abella - Philippines SLU H]

I believe becoming wealthy is more positive and affirmative when it comes and relates to financial abundance. Wealth could mean many things - it could be wealth in terms of health, relationships, spirit, heart, financial, attitudes and values towards greater abundance in life. What we could rationalize is that becoming wealthy does mean in terms of having abundance of money alone, it represents many other things as already above mentioned. Wealth in a greater avenue simply means having the resources or liquidity (cash or any other accounts near to cash such as marketable securities - stocks, bonds, treasury and mutual fund shares)
in meeting financial obligations on time as the need arises. The other thing to remember in becoming wealthy is the need to have traits and I call these two traits : discipline and the ability to exact happiness and enjoy things on engaging in investment ventures. Just as the road to poverty is to simply enjoy instant gratifications or instant expenditures, the wealthy simply afford themselves to enjoy life by investing their monies and watch it grow. Money begets money so unless an individual commits himself to frugality and then save for the purpose of investment activities it will be as if we are in the contentions of what Julius Ceasar once said: " There is a tide in the affairs of men, which taken to the flood leads on to fortune, omitted all voyage of their life, is bound in shallows and miseries. On such a full sea are we now afloat, and we must take the current when it serves or lose our ventures." This is now the jump point, we must take the current tide of opportunities and wealth by taking strides in having financial investments and opportunities. Pay yourself first, that means if possible save 10% if not 5% of your monthly salary and save it in the bank after a decade put it in a mutual fund investments if you are conservative but stocks and bonds if you are brave enough to risk and win bigger returns. As one author once said: " Money is not everything it is the only thing." Be very careful with the money in your hands, manage it wisely and prudently or others will do it for you. Remember there is that wealth concept when it says that when there is that financial events which might have happened or could have happened and no one would venture or step into that sides someone would venture and attempt to do it. Do not wait for others to shape your wealth in life instead put an effort or actions to attain it. Dream your dreams until your dreams will come true. Welcome wealth in our lives and let poverty be the thing of the past.

[Vlady]

lol all of this pretty much sounds like this,

"become poor, so you can become rich"...

lol

[lol]

lol

You must remember that the definition of a rich person is this: A rich person is a poor guy with plenty of money.
lol

[George]

I am not American, so I am not used to spend my money for useless things. Excuse me Americans! :)

Income is very important to become a rich, so…

You have no chance to become a rich if you have not started your own business.

Be professional on your business, be honest with your clients (customers).

Do not hold your money on your bank account (pocket), just spend it to increase your income. Think how to transform your every cent to your rising income.

Time is another valuable thing you must to use to become a rich (TV is spending a lot of time and mind, so I am not TV watcher).

Finally, I‘ve got +20-25% income the last 5 years, - since I started my own business.

[Zach Goetz]

I want to become a rich person

[Dana]

Working on it! *laugh* I have a TV but no cable television stations, we just watch whatever DVDs we have lying around, and if we get bored there's a library branch nearby at which I can reserve anything they don't already have on the branch shelves. As long as I turn it back in on time, it's free. Some city systems charge a small fee for DVD checkout so I'm extremely fortunate.

I monitor my spending and income in GnuCash. I'm about to go back through last month's figures and beat it into my brain what I need to cut out of my budget.

I will vouch that if you get a house that is priced low enough, the monthly payments are way lower than rent and if you get a fixed-rate mortgage they will not go up year after year as rent does. You also don't have to jump through hoops to do repairs as you would in a rental. The only drawback is they want to see three years' worth of tax returns and I've been unemployed for the last three years (long story), so I have to put that off and keep renting for a while. :(

I want to start my own business from home so that I have something to file taxes on every year, plus my own income, and not necessarily have to put my daughter into daycare, or at least not have to do it full-time. (Also it is easier to juggle daycare and work by bus if work's at home.) Had I gotten on the ball about that when I first started living on my own shortly before her birth we would probably be sitting pretty now, but I was too distracted by mental health issues and interpersonal drama so I have a lot of catching up to do.

But I know I can do it. I just have to set the goals and go for them.

You have an awesome blog here.