If you’re anything like me, you want to be stinking rich. You want to look down on the plebs from your (figurative) high horse and mock them all for not having as much cash as you. You want the security that comes with having that much money, knowing that you’ve won the contest of accumulating wealth. I salute you for finally figuring this out. Yeah, love is great, but you know what’s better? Love and money.
$1 million used to be the goal everyone aimed for. But as time has gone on and inflation has reared its ugly head, it’s become not such a big deal to have a net worth of a million anymore. That’s how much the average house costs in both Toronto and Vancouver for God’s sake. We know that’s unsustainable, but still.
So forget becoming a millionaire. That crap is child’s play. How about becoming a deca-millionaire, which is just an impressive way to say you want to be worth eight figures, not seven?
I’m not going to pretend it’s easy, but it’s certainly obtainable. Here are the ten steps you gotta take to make it happen.
1. Start early
What’s that? You’re 92 and you want to be stinking rich by 94? Good luck with that, Grandpa. Also, please don’t soil your Depends.
There’s a reason why just about every ultra-rich person you read about was good with money at a young age. Not only does that give the maximum amount of time for compounding, but it instills useful features early in life. While the average 13-year old was busy touching himself and getting polio in the early-1940s, Warren Buffett was delivering newspapers and dabbling in other businesses.
Look at it this way. If you accumulated $10,000 at 15 (which isn’t likely, but doable) and invested it at 8% over the next 50 years, you’ll end up with $470,000, excluding taxes. If you wait until you’re 25 to put aside that $10,000, it’ll only be worth $217,000.
2. Do without
If you combine starting early with hardcore frugality, it will give you a huge head start to ending up with that $10 mil.
Look at it this way. For every $25 worth of drinks you buy as an 18-year old, you’re robbing your future self of $1,124 in 50 years. Finding a way to increase your savings by just $300 per month for those 50 years will get you to $2.2 million. If you can find a way to save $1000 per month over the next 50 years, you’d be 74% of the way to $10 million.
Yeah, it takes a lot of doing without to save $1,000 per month, but it’s possible for most everyone.
3. Cheap living
If you’re serious about this whole getting rich thing, cutting down your biggest expenses are the key. Chances are your biggest one is shelter, while the second biggest is transportation.
When it comes to shelter, think outside the box. Offer to exchange a free room in an old person’s house for yard work and taking the lids off jars. Get together with a couple of your buddies and rent a place. Or, better yet, rent (or buy) a place yourself and get enough roommates to pay for it. I know a guy who rented out rooms to guys from his church for years, which worked out well enough that he paid off his mortgage before hitting 30. You could even do what I’ve suggested for years and move to a smaller place with a much lower cost of living.
Transportation costs are easy to decrease too. Living within walking distance to work is helpful, and lessening your commute frees up time. Driving a 10-year old car is much cheaper than driving a new one, and you’re not giving up much in performance or reliability. Sharing a car as a couple can go a long way too.
4. Use debt wisely
I don’t care what Warren Buffett has to say about leverage. The easiest way for someone to grow wealth is to intelligently use debt.
You don’t even have to borrow to buy an asset, it can be as easy as just taking out a longer term mortgage on your principal residence. By taking out a 30-year mortgage compared to a 15-year loan for a $400,000 house, you’ll be about $500,000 ahead of the game if you invest the difference between the two payments. Essentially, you’ll be borrowing at a 4% rate while getting 8% in other investments.
There are a million ways to use debt intelligently. Rental properties aren’t for everyone, but they’re profitable if you buy at the right price. They’re not a good buy in most parts of Canada, but there are plenty of opportunities for my U.S. readers. The key is to avoid the markets everyone else is looking at.
5. Get a high paying job
Getting rich is much easier if you can save 50-75% of your income. Cutting expenses is one part of that equation, but earning more is a much bigger deal.
If you can live on $20,000 per year while making $80,000 after tax, you’re making some serious progress towards our lofty $10 million net worth goal. Chances are they’re not giving those jobs away to just any moron, so you’re going to have to work really hard to get ahead. Every employee thinks they work harder than the competition, so make sure you take a critical look at your work habits and adjust accordingly.
Some of you will be in sectors that don’t pay as well. At that point, you have a couple of options. You can either move into something related that pays a little better, or choose this next step very wisely.
6. Pair up intelligently
Fellas, listen up. I know she’s hot, but don’t even think about dating a stripper. Ladies, it’s the same thing with the drummer of that band you saw that one time. Have all the flings you want (BUT FOR THE LOVE OF GOD WRAP IT UP MAYBE EVEN TWICE), but save the marryin’ for someone with a decent earning potential.
Although I don’t think it’s so bad to be a lady employee in 2015, I’ll admit that it is slightly harder for a female employee to get ahead than it is a male one (although at least some of the disparity is self-driven). But there are so many women kicking ass at their careers that you can join them. There’s no need to accept a lessor career because you have a vagina. If your boss sucks about it, find a new one.
It isn’t just about her earning power. If she’s as serious about accumulating wealth as you are, she’ll be on board with somewhat extreme frugality and making sacrifices for the future. Plus, there are all sorts of economies of scale to being a pair, as well as a built in support system.
7. Stay together
Billionaires can get divorced and throw the ex a couple hundred mil in the divorce proceedings, and never notice the difference. Guys like you and me can’t afford to part with that kind of scratch.
I’m not going to bother giving advice on how not to get divorced, since a) I have no freaking clue, and b) there’s nothing more annoying than a guy giving vague answers like “make sure she’s right for you,” whatever the hell that’s supposed to mean.
There is one thing you can do that’s statistically proven to reduce divorce, and that’s get married a little later in life. The likelihood of getting divorced tends to go down as you age, and more often than not if you make it through your 20s without getting divorced, you’re in good shape to stay together.
8. Get better returns
Many people in 2015 are resigned to getting market returns. While market returns will ensure you do better than the average investor, they likely won’t do much when it comes to getting stinking rich. Look at it this way: $12,000 per year invested at 8% over 50 years works out to $7.4 million. But if you can get 12% on your money, you’ll end up at $32 million.
This doesn’t necessarily mean investing in stocks, although they’re the default. If you’re not willing to put in the work when it comes to any sort of investment, you likely won’t do well, whatever it will be. But if you focus on something like real estate, lending money, or any other kind of business that can consistently earn great returns, that’s the difference between ending up comfortable and ending up with eight or nine figures. I won’t tell you it’s easy — because it’s not — but doing the work really pays off, especially as you amass more capital.
9. Don’t quit early
Although I’ve been somewhat critical of the concept in the past, I have a lot in common with early retirees. We both want to end up with enough money that we never have to work again. My end goal is to do things that I like to do that happen to pay relatively well, while they want the freedom to golf or hang out with cute puppies.
That’s all fine and good, but quitting early isn’t going to get you to eight figures. Stopping when you barely get into the millions might lead to an existence that’s a little more fun, but there are probably dozens of ways you can make a living and have a great time doing it. I work just as hard as I did before when I was a chip guy, but these days I can pick and choose the projects I want. I didn’t have a choice to drop a store with bitchy customers back then. These days I do. Not that any of my customers are bitchy, but still.
This also means committing to the act of not just becoming comfortable, but getting wealthy. I know plenty of people who got to the point where they were doing good, and just kind of stopped there. Again, there’s an argument to be made for doing that, but not if the ultimate goal is getting to $10 million.
10. Own a business
There’s a reason why most deca-millionaires own their own business. The system is set up so business owners have a huge advantage.
I’m not just talking about an online business either, where you have a blog or a mildly popular but unfunny Twitter feed. A real business lets you write-off stuff like a portion of your house as a home office, your car expenses, internet or your cell phone, and even meals out for work related stuff (tread lightly with that last one). Hell, you can even travel to Vegas for a conference each year and write-off your airfare each way, taking a few extra days to enjoy the sights and sounds of Sin City. Depending on your expenses, you’re looking at thousands of dollars per year in write-offs.
But the real benefit comes from the ability to grow capital inside the business. By paying yourself a paltry salary and retaining the earnings inside of the business, you’ll save a bundle on taxes that way too.
Think of it this way. A corporation in Alberta is looking at a tax rate of approximately 25%. So if your corporation earns $100k per year, you’re looking at a tax bill of $25k, plus any taxes on the salary you pay yourself (or dividends, if you choose to go that route).
At $100k per year, the amount you’d lose in taxes works out to about the same in Alberta, which is one of the least taxed jurisdictions in the country. But for every nickel you make as an employee beyond that original $100k, you’re losing nearly 40% of it. On the next $100,000 in earnings, the corporation keeps $75,000, while you personally would only keep $60,000. You can see how the corporation sets up well for someone who’s earning a lot, which a deca-millionaire would plan to do.
Bonus: A concrete plan to get there
For most people, getting to $10 million is nothing but a pipe dream. Statistics show that if 10,000 people read this, 30 will end up with more than $10 million, although that is bound to go up over the years. That’s not a lot.
Here’s what you gotta do to get there, starting at age 20 and assuming you have $50,000 to start out with. You have to:
- Add $12,000 per year to your nest egg
- Earn 10% per year, instead of averaging 8%
- Use the various strategies I’ve outlined to minimize tax in your life
- Hold these investments for 45 years
- You’ll end up with $13 million, before taxes
Frankly, this isn’t that hard. The average household in Alberta earns nearly $100,000 annually, although that’s probably heading downwards with oil. By being smart with your expenses and having both you and your spouse working, it isn’t so difficult to put away $1000 per month. The only tough part is maximizing your return.
What’s that? You’re not 20 anymore and you want a plan to get there now that you’re 30? This is a little tougher, but here’s what you need to do, assuming you start out with $50,000:
- Add $25,000 per year to your nest egg
- Earn 11% per year instead of 8%
- Not only minimize your taxes, but maximize your earnings
- Hold these investments for 37 years, until you hit 67
- You’ll end up with $14 million, before taxes
See how much more difficult that gets with age? It’s not impossible by any means, but it’s going to be tougher for a family to put aside $2,000 per month while juggling kids and whatnot. At that point, the most realistic option for most people is to really accelerate their income.
There you have it. 2300 words on how to become stinking rich. Go forth and start doing these things.