How to Get Rich in Three Easy Steps

People don't believe how simple it is to accumulate a significant amount of wealth, but it really is quite easy. All you need is a bit of discipline and to know the three steps necessary anyone can take to grow a significant net worth. The steps are:

1. Spend less than you earn. This is THE key to getting rich. Said another way, save a portion of all you make.

To spend less than you earn, you may need to earn more or spend less.

2. Invest your savings regularly in good, solid investments. I like index funds.

3. Do this for a long time, letting the power of time and compounding work for you.

That's it.

Yes, it's that easy.

Comments

[MyFinanceForum.com]

You're SO right. It is easy. It does require discipline, however, and that is the hard part. Many people don't have discipline. One way to remove yourself from the discipline problem:

Automate everything! Automate your fund contributions, 401(k), savings, etc. Use automatic debit/withdrawal at your bank or (even better) from your employer.

[MamaDuck]

Discipline and enough money to cover bills and have some left for savings ;). Great, simple ideas tho! Our list is up as well if you'd like to check it out!!

[Jennie Rosenbaum]

Really neat advice, thankyou. I am beginning to get spending less down to an artform, now I just need to save some! thats the trick!

[Northern Girl]

Discipline - that's the kicker. Great pointers, though.

(Found you through ProBlogger)

[Jersey Girl]

Nice advice, now if I could stick to it! LOL

[Graham English]

Awesome headline! Words for the wise.

[Harrison]

Although the tips are simple, but the meanings are there. I totally agree we must invest and make use of the compouding power to make money. Every rich people is doing this

[Olivia]

KISS. I wonder why people try to make this so complex and full of twists and turns. Yup, it really is that simple, isn't it...maybe more simple than easy?

[Ray Dotson]

This is so true. It's funny how there are so many things in life that can be accomplished by just NOT doing something, like NOT spending too much, NOT eating too much, NOT drinking too much. It's so simple. Thanks for the great tips!

[Insurance Guy]

Amazing but sometimes some tings are so obvious we become blind to them. About the only caveat in your post is that the person should be young, meaning should have enough time in life for savings to compound and accumulate.

[Scott]

I agree with you in that these things are key in the life of a wealthy person, but people must also be willing to take calculated risks and be prepared to fail at times. This is not to say that an older person should do such things, but an older person also doesn't have the time to let money accumulate. The trick is learning from other people's mistakes, using other people's money on smart investments and becoming friends with wealthy experts. You'd be surprised how quickly you can start making money via osmosis.

[David Camden]

I have my money over sea's I have funds that make me eney were form 5% to 12% a month. Will be able to make 5% 50% a month when i have more captial to invest. If you want to get rich you have to invest over sea's it is just that simple you can take a 3k investment and in 6 years be making well over 9k a month in comping is our best friend!! I am 25 i came from nothing i was broke when i got out of a trade school that i went to to work on HVAC. My net worth is growing rapidley I am going to quit my job in the next to years. I am going to fire my boss!! TO me a job spells JUST OVER BROKE!

[Terry]

Sounds great, but not realistic for some people. I earn minimum wage (and have no marketable skills and no money to pay for training to acquire marketable skills) and have student loan debt; is it realistic to expect me to spend less?

[Turo Jantunen]

Hi,
Those are pretty simple rules, but following them is not that easy. In my mind key to get rich is to manage a good passive income stream. By doing that your hands are not tied to one job and you can always search other money making possibilities.

[JGInvest26]

FMF: Common sense isn't so common. You're right on the money, all pun intended. Becoming wealthy is no different than becoming skinny. Want to lose weight? Burn off more calories than you take in. Want to get rich? Spend less than you earn and invest the rest.

[sanele]

i am also a minimun wage employee and looking for ways i could use the money i am saving to grow in the means of finding ways to start a business or investing i am confused and need help what ideas do you have and how can i make them come true

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

I think getting rich is really that simple that is - save, invest and buy time. It's that simple, those who can have the discipline in having these three qualities would enable them to become affluent and rich. However, there are other important salient features where one must attribute before he could have a silver plater - one of this is making your investments diversify, diversification is so important to avoid losing all of your investments in times of downturns. This is the proverbial don't put all your eggs in one basket. The other important thing to remember when investing is have a passive income, what does passive income advocates is that a person could earn despite him not putting a single effort, this is the concept of letting your money earn for you instead of you becoming its slave. One typical example of this is putting your money in time deposits, it means if you are a conservative person what you have to do is to invest time and at the end of the contract period you earn a portion of interest earnings as what your certificate states. The most important concept that I have noted is the concept of leveraging, the business world has existed and is still existing today because of the concept of leveraging. Businessmen becomes rich because they could leverage other people's money, time, intelligence and efforts. You name it, from the banking firms to investments, to manufacturing the power of leveraging is there. Take for instance the banking firm, the bank entices depositors to deposit their monies and pays 3% per annum less witholding tax as mandated by the Internal Revenue Service but the other side of the coin is that the banks would also lend your money to other investors and earn 18% per annum computed and charged monthly at 1.5%, hence through leveraging earns 15% higher than
the savings paid to depositors. Leveraging was used by using other people's money. If you go to manufacturing firm, leveraging is applied by using other people's time and efforts. In a wider scope, the firms pay for the salaries, perks, vacation and sick leaves, and in the end provide a means of livelihood to its employees and community at large. If you go to personal investments, you leverage time to make your money grow. Invest time coupled with your money would let it grow, grow and grow specially if your money has already been invested for a decade. I think becoming rich is not that impossible at all given the rules that we have to play. Remember money is just a game, those who violate its rules will be penalized while those who have the discipline of saving money, then invest it coupled with time would lead to the road of riches. As one author would said: " Those who marry with money will surely earn it."

[DummGuy]

One of my many second jobs was Pizza Delivery Driver, making minimum wage. I read the fine print of the employewe's handbook, and discovered that ALL employees were entitled to buy stock in the parent company through payroll deduction. With NO BROKER'S FEE! SO, I had the company put 5% of my gross earnings into the stock purchase plan. I still have the stock. It's still growing. I'm rolling the dividends over into more stock. Still with no broker's fee! The sweetest part of this whole scheme is not that I never even noticed 5% coming out (I didn't! especially since it was taken off the before tax income, and taxes are deferred until I sell the stock!). No, the nicest part of the whole thing was how po'd it made the store manager where I worked when he discovered I owned a bigger share in the company than he did! :P

[dain]

I have been saving my money for a while now but have been doing nothing but buying bonds and cds with it and i would like to start getting into mutual funds and such of that sort. now camden made the overseas investing sound like a great deal, is that like a mutual fund only over seas or what is it? how would i go about setting that up? is that the best thing i could do with investing my money out there? i dont want somthing that i really have to manage i just want it to be automatic. i dont know too much about the whole ira and mutual fund suff, all i know is that i want to save and invest my money and hopefully one day be very rich. i simply need some kind of help getting the whole investing thing started. i dont know where to go and what i want to ask for exactly. how do i get started?

[Diane]

Several points to make:

1. For Dain and others - if you don't know anything about investing, your money will be better invested using a broker who can help you with that - the market nowadays is very volatile and while foreign investments can make sense, you need to understand where the investments are going within that fund. Remember that every buy you make is a bet you are making and someone else is betting against you.
2. Pay yourself first, as the pizza delivery boy did! How incredibly smart that was. It automatically forces you to live on less. Use the automatic deductions or even just a transaction in your checkbook to transfer an amount each month to your savings account.
3. If you have debt, you need to determine how much you are paying for that debt. Look for the interest rate. Two examples - Student Debt at say 3-5% and a Credit Card at 18-22%.
4. Pay for whichever gives you the most return on that investment - the CC, savings/bonds/stocks, student debt. (You can throw all your debts in here, as well as how well your savings/bonds/stocks are doing.)
5. Make an assumption that anything that is variable will continue at a flat rate FOR NOW. If you look at this every month you pay bills, you can change it to the new rate if it varied from last month's rate (most of your stocks will do this, some loans will too).
6. Simplified Example #1: $1000 debt of CC at 20%, $1000 student debt at 5%, savings at 3%, bonds at 4% and stocks at -1% --- pay off the CC first!!!
7. Simplified Example #2: $1000 debt of CC at 20%, $1000 student debt at 5%, savings at 3%, bonds at 10% and stocks at 30% (and yes, I made 31.2% in 2007 in my 401k) - invest in the stocks!
8. Most of my money was made in foreign investments in 2007 (would have made more if it was all foreign - but note that I have an MBA in global supply chain management (operations and logistics) - I knew a little more than my brokers about what I was doing.) I also paid more than the employee match into my 401k - every pay check - while still having student loans well above $1k, and growing CC debt for unexpected emergencies. But at 47 and still in the years of "starting over," I have to pay myself for my own retirement first.
9. For those on minimum wage contemplating startng a business - learn the business from the ground floor up before you consider such a risky investment. One's own business will cost all the hours one has in a week, plus your health and money, and if you don't understand the business inside and out, like many small businesses, it will go belly up within 3 years.
10. Read read read! The stuff above is simplified, enough to get a beginner started. There is also good data about buying when the market is as low as it is (which could be negative as in example #1), but if you're a newbie to that, I would still suggest paying off the CC first (a good 20% return on the money, to your pocket and not to the CC company's) rather than entering into a volatile (read risky) market that you do not understand.

[Chris]

#1 is the key.

[Leroy Ang]

Hi Buddy,

You hit the nail right head on! You have introduced one of the best tool for any layman to achieve financial freedom.

I am glad to be able to come across your blog.

[MAINMAIN]

I THINK THOSE RULES ARE GREAT AND ALL THE COMMENTS ARE GREAT AS WELL BUT THE RULES ARE GREAT FOR ME ILL STICK WITH THOSE LIKE GLUE!

[David]

I think that is a great START, and everyone should be doing that. Sometimes, I don't think people know where to start.

Also, there is something to be said about efficiency. Sometimes you don't need to chase higher and higher investment returns...or even invest at all...IF your financial life is incredibly efficient, you can end up living on very little, take less risk with your money, and accumulate quite a lot.

[Cyllya]

I have trouble with #3. :(

[daren snell]

So many people say "live within your means, don't spend more than you earn" is that discounting you life or restricting you from feeling the fullfilment of dreams. I agree with the putting a bit of the $$$ away into forms of investment and continue growing future wealth. The problem I have, is with the thinking that people are restricted to how much they can earn. There are so many possibilities for motivated individuals to create opportunities for themselves. We have encourgaged a world society of "how much will i get paid for the job?", instead of "HOW MUCH AM I WORTH?" to perform the task with skill and dilligence, then back up the question with positive action. With this positive proactive mind approach the limits of income are in the hands of the individual.
Then strive to gain knowledge on the best ways to invest your $$$, rather than giving it over to someone to make the descisions with YOUR FUTURE wealth.

[daren snell]

So many people say "live within your means, don't spend more than you earn" is that discounting you life or restricting you from feeling the fullfilment of dreams. I agree with the putting a bit of the $$$ away into forms of investment and continue growing future wealth. The problem I have, is with the thinking that people are restricted to how much they can earn. There are so many possibilities for motivated individuals to create opportunities for themselves. We have encourgaged a world society of "how much will i get paid for the job?", instead of "HOW MUCH AM I WORTH?" to perform the task with skill and dilligence, then back up the question with positive action. With this positive proactive mind approach the limits of income are in the hands of the individual.
Then strive to gain knowledge on the best ways to invest your $$$, rather than giving it over to someone to make the descisions with YOUR FUTURE wealth.

Re: So many people say "live within your means, don't spend more than you earn" is that discounting you life or restricting you from feeling the fullfilment of dreams. I agree with the putting a bit of the $$$ away into forms of investment and continue growing future wealth. The problem I have, is with the thinking that people are restricted to how much they can earn. There are so many possibilities for motivated individuals to create opportunities for themselves. We have encourgaged a world society of "how much will i get paid for the job?", instead of "HOW MUCH AM I WORTH?" to perform the task with skill and dilligence, then back up the question with positive action. With this positive proactive mind approach the limits of income are in the hands of the individual.
Then strive to gain knowledge on the best ways to invest your $$$, rather than giving it over to someone to make the descisions with YOUR FUTURE wealth.

I see vast opportunities but have no money to exploit them.

[dkr]

you left out some important things. become debt free and have no payment. with no payments, building wealth is easier.

[FinancialBondage]

So many people want to be rich. The reality is, few of us ever will be. Why? Because being rich is not a worthy goal to have.

[My Money Blog]

I would reitterate the importance of index mutual funds. That is the key to earning higher returns because 70% of actively managed funds fail to beat the market index performance.

[Marshall]

To Terry who Posted:

"Sounds great, but not realistic for some people. I earn minimum wage (and have no marketable skills and no money to pay for training to acquire marketable skills) and have student loan debt; is it realistic to expect me to spend less?"

Step one, invest in some education / skill aquisition which will enable you to earn more money. Or get second or third jobs.

[Keelan Cunningham]

I agree. It's precise and concise. It's really simple: work, save and invest. These are just one of the fundamental steps to success.

However, it is always followed accordingly. It really depends on your current status of living.

[Augustine Mwanje]

Isn't it amazing how this is timeless advice, yet so few even bother to put it in practice? I guess developing the discipline is where most people seem to have a problem.

It's not how much you earn, but what you do with your income that makes the difference. However, it helps to increase your earnings.

[Bill]

A final point I would make on investing. It's not enough that you invest in Index Funds and diversify the types of Index Funds but you also have to leave it alone! Even when the market is crashing around you! This takes a lot of courage to do this one small sentence especially as you're entering your retirement years.

During the latest recession/depression 2007-2009, my 401K dropped 43% in one year's time. In order to make up that type of loss, you will need to have your depressed 401K earn 86% (double your loss) just to break even. Over the last year I continued to invest (dollar cost averaging at lower cost) and did not panic and move my stock funds to safer investments (i.e. bonds or money markets) when the economy tanked. Within a year the stock market gained back my 86% and then exceeded that amount. What should you learn from this experience? "Don't panic and wait for the market to come back". If you cash out your investments you lock in the loss. As stated by the investing guru, Warren Buffett, "What part about "Buy Low and Sell High didn't you understand?".

Please don't listen to so called stock experts tell you the sky is falling. Another quote by Warren Buffett, "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." The stock market as a whole has averaged around 10-11% since the great depression. No 5 year period has it ever lost money so why wouldn't you invest, probably into diversified index mutual funds that track the market, which are low cost and beat 75% of all other mutual funds available for purchase.

[Emmanuel]

it is true! When you analyze the three points- but you can't achieve great wealth without being disciplined and satisfied with Whatever is it that you have now. All best!