I never really had a plan for financial freedom when I was in my 20s. I just expected that I’d always have a job that paid well and allowed me to go on vacation, buy a few toys and cover a mortgage whenever I settled down. I probably wasn’t alone in seeing the world that way. The idealism of youth!
The financial crash of 2007/8 and its aftermath put paid to such innocent notions.
Today we see that wages and salaries have stagnated. They have no more purchasing power than wages of the 1970s. In fact, in the last 8-9 years, many people have seen a distinct drop in their living standards. Despite being told that unemployment is running at 4.7% (in the USA), we keep hearing about more and more job losses. So do you believe the sanitized government figures or not? I certainly don’t.
The Baby Boomer generation is also reaching retirement age. And now they’re being told that the pension funds, some irreparably damaged by the fallout from the financial crash, don’t have enough cash to pay retirees what they’d been expecting. Even those already on pensions are seeing their payouts being cut.
As more and more Baby Boomers cross into “retirement”, the same amount of money in pension pots has to be spread thinner over more and more people. So retirement won’t exist. Pensioners will have to take on jobs of one sort or another just to make ends meet.
The generations behind the Baby Boomers are expected to foot the pension and medicare bills. This in conjunction with having to pay ever higher property prices and stagnating wages means things are only going to get more difficult for you as you get older, especially if you’re under 30.
So much for the American dream.
Every generation now has its own financial problems. Given that so many analysts and economists are predicting another crash, things are going to get worse. Much worse. So how can you get to financial freedom regardless of what age you are?
The first thing to do is change your mindset. Financial freedom is a mindset that puts into motion a life of discipline so that you can achieve your goals.
With that in mind, here are 10 actions that will make you rich. However, there are many definitions of “rich”. Being rich financially is only one of them. That’s the kind of wealth that would see you through 20 years without earning a single dime and still having money left over.
10. Have a Plan
You have to plan to get rich if you want to be rich. Even people who play the lottery have a plan… It might not be a very good one or even successful, but they do have a plan laid out: keep buying tickets until they win. Having a plan is the difference between wishing you were rich and living rich before you actually become rich. I’m not talking about living lavishly, I am talking about being wise with your money.
Create more than one plan. I now have a long-term plan – one where I guarantee myself a significant amount of wealth over the course of 3 to 4 decades. My second-tier plan is a way for me to get rich in 15 years. And my third plan — the plan that I mainly focus on — is a 5-year plan.
You want to have fallback plans that are more conservative and guaranteed, because in the beginning, creating wealth is difficult. Only after you have the knowledge, experience, and money does your wealth compound.
And it’s the compounding of your wealth that’s the key.
9. Become a Compulsive Saver
In my 20s, I spent pretty much all my disposable income. Looking back with a little bit of wisdom, it was a foolish mistake. But when you’re that age, you just don’t think 10, 20 or 50 years ahead. The future will take care of itself.
Nowadays, I save a regular amount each month. A portion of that goes into buying gold and silver so all my savings are not in one basket. I work hard for my dollars, so why shouldn’t my dollars work hard for me? One way to think about each dollar you can save is as an employee; each dollar will happily work for you if you give it a job.
8. Focus on Investments That Provide Cash Flow
This means stocks that pay dividends (although I don’t have many stocks myself these days), rental properties, becoming a lender, or anything else you can buy that will give you passive income. Forget about speculative or capital appreciation. Don’t buy property in anticipation that its price will rise; buy property with a view to renting it out. The only thing that matters is how much money you are making from the property.
7. Buy at the Right Price
A great saying in the investment world is that you make money when you buy. What this means is if the deal is structured correctly, you always walk into an investment wealthier than you were before. This goes for other things as well, including buying everyday items. Saving money because you are buying at the right price will add up to a lot over the years and decades ahead.
Those who bought gold and silver over the last couple of weeks, as I advised in posts on this site, are already wealthier than they were when they bought. It may only be a couple of percent, but it’s more than a bank gives you in interest for an entire year.
6. Treat Debt as Your Arch-Enemy
Never go into debt for a vehicle, consumer good, or product that doesn’t produce the income to service the debt. This is a powerful code to live by, because if you just live by this one rule, you will not only become financially rich, but this will open up the floodgates of freedom in your life. Do not become an indentured servant by going into debt for a piece of metal that you drive to and from work.
It’s important to accept that no one cares what you drive or what brand your clothes are. Sure, it feels great introducing your new car to friends for about the first 20 seconds, but after that, no one cares, so don’t get stuck with a 5 or 6 year financing commitment.
5. Invest in Your Business Relationships
This includes mentors, clients, and your financial team. Whether it is your Realtor or elderly neighbor who made a fortune in commodities 20 years ago, learn from other people and treat them with respect.
4. Educate Yourself
Surround yourself with audio books and podcasts, and sign up for a few financial newsletters. Most conventional education through a college or university does not teach you how to manage your money. Strange as that’s something that everyone should know how to do. Why is the education system so lax in this regard?
3. Real Diversification
Real diversification is important. That means owning physical gold and silver, rental properties, stocks, private businesses, lending, farmland, whole life policies, and other assets.
The typical idea of diversification between mutual funds, individual stocks, bonds, REITS, and MLPs is not real diversification. These are ALL tied to the stock market, so this is not diversification. This is having all your eggs in one basket and if the stock market goes south…again…well…
2. Live Below Your Means
If you are under 35, this is your asset accumulation phase and I wish someone had hammered into my head just how important this is. You should be aggressively acquiring income-producing investments that will guarantee your financial freedom by the time you are 50. Because of my profligacy in my 20s, I’m now playing catch-up on this phase myself.
To do this, you need to live below your means. This starts off by avoiding the trap of keeping up with the Joneses. Don’t get caught up in the love affair with stuff, or having the same status-like items that your friends have. They will remain poor, and probably in debt, until the day they die.
If you make $50,000 a year and you drive a $25,000 car, you’re an idiot. With $25,000, or the payments needed to support that car, you could be building a massive amount of wealth for the future.
1. Compound Your Wealth
Imagine a hockey stick laying on the ground, pointing straight up. This is the effect of compounding your wealth. It takes time, and is barely noticeable in the beginning, however, after decades of re-investing your wealth, eventually your net worth will go parabolic. People who are in their 20s who start investing today — even if for just the next 7 years — can actually become wealthier than someone who doesn’t start investing for 7 years, but then invests every year until they retire. That’s how powerful it is to start putting your money to work immediately.
The wealthy understand this, which is why a 2% dividend can one day become a 100% dividend on your original investment, if given enough time. This practice creates legacy wealth – a wealth that will be transferred to your children and your children’s children.
“Compound interest is the eighth wonder in the world…He who understands it, earns it…he who doesn’t…pays it.” – Albert Einstein
Think about that the next time you are at your bank signing up for a loan; YOU are becoming someone else’s asset. YOU are helping their dollars create more dollars.
If you want to be rich, then act rich. The actions of the rich are not what Hollywood portrays; it is applying the above advice to how you live your life.