Increasing your net worth is fairly straight forward. Lower your expenses and/or increase your earnings. There’s only two ways to accomplish it. Although increasing your earnings has a much higher potential, the easiest way to start saving money is going to be through decreasing your expenses. For me, that means living like a poor person. Well, at least from the perspective of most people I talk to, but I don’t think I’m poor. As a young bachelor this isn’t much of a problem for me, in fact I find it exciting as it’s a challenge to see where I can cut costs and find ways to save more money. However, if you’re not all about decreasing your expenses for your entire life, you may be wondering… how long do I have to live like a poor person, until I become rich?
You’re Already Rich
I say this a lot, but if you’re living in America, Europe, or any other modern country you are most likely considered to be in the top percentage of the worlds inhabitants. You have a roof over your head, food on the table, and can afford your cable television (most of us). As a result, you’re not poor, you just don’t have as much stuff as you’d like. If you want more stuff you’re going to have to increase your revenue, but how long will that take?
It’s Not Going to Happen Overnight
Following the basic model of punching a clock 9-5 and getting paid bi-weekly you’re not going to get rich anytime soon. Of course it’s a predictable, easy path without many obstacles because time is on your side along with conservative investing. This is slow because everyone else is doing it and everyone else can’t make 20% on their investments this year either. If you continue to just punch a clock, you’re not going to get rich overnight.
The Double Sided Coin
I think of becoming wealthy as a two sided coin. On one side is your potential to make money and on the other is your ability to decrease your expenses, thus increasing your savings rate and/or free time.
The potential to make money has unlimited potential whereas the ability to decrease expenses is limited by your current situation and may be a relatively small number. It should come as no surprise that the downside is easier to work on (some may argue otherwise), because most of us don’t know how to easily increase our earnings in the short run. It’s much easier to simply not buy something than to create another income stream.
If you’re able to lower your expenses you’ll give yourself some wiggle room to play with financially. This is done through frugal living, which frugal living which gives you time to focus on the upside. If your lifestyle wipes out all your time and money, you won’t have any time or money to focus on making more money. Once you’ve appropriately accepted that you’re going to live like a “poor person” until your earnings begin to grow either by investment income, real estate, or through creating a business, you’ll remain relatively poor.
So the answer to the question of “how long do I have to act poor til I’m rich?” in my opinion, is based mostly on your ability to create additional streams of revenue that fulfill your own definition of becoming rich. This can be done more easily through frugal living which allows you the time and excess money to work on businesses that will allow those revenue streams to blossom. Learn how to create businesses and value for others and you won’t remain poor for long.