Great advice. In particular, I like your idea of investing in not only real estate, stocks, etc. but investing in your future by getting an education.
SavingDiva
· 2 years ago
Great post! You could always go into more detail about how to cut out the biggest money eaters in a budget...cars and homes...avoid both...ride a bike (no public transportation costs) and live rent free (parents, as a care taker for an old person, etc)....Just kidding! It was a great post! I think the most important thing you mentioned is spending less than you earn. It's a pretty novel concept in the U.S.....
The Financial Blogger
· 2 years ago
There are several ways to borrow money and make money out of it. At the very least, buying a house is a great way to improve your personal situation and, technically, you house will increase in value overtime.
Borrow money to learn is always a great way to improve your wealth. You can get a promotion or invest better from a better education.
One last thing, you can also borrow money to invest in the market to to create a company. While being more risky than my other examples, there are several people who become rich by leveraging.
If you are making 25K and you don't spend more than you earn, you won't eat much and probably will never be rich anyway ;-)
Eric
· 2 years ago
Excellent post! The one area where I believe in allowing myself to spend more than I earn is with the house. Saving up enough money to buy a house outright is an admirable goal, but one that I haven't been able to bring myself to do. Although I plan on taking a loan out to get our next house, I will be paying off more than just the mortgage amount in order to pay the house off more quickly, and hopefully avoid some of the nasty interest.
Frank
· 2 years ago
I'll have to respectfully disagree with TFB above. I was making 25k when I first graduated doing contract work and managed to live well below my means. Its all a matter of controlling costs. I drove a beater, didn't go out to eat much, and went out to the movies/bowling once a month. I'd hardly call that starving, I even had enough money for an annual vacation! :)
The Financial Blogger
· 2 years ago
Frank, I guess it depends on where you live and what is your definition of being rich. Let's say your rent is $600 a month (for a very small apartment in a major city), you pay $150/month for power and another $100 for cable/internet/phone/cel phone (you can't obviously have all of them for $100 so you'll have to make a choice). You are left with $1,233 a month (assuming a 25K salary).
Out of that amount, you have to take out groceries, entertainment, taxes, gas(or bus pass), clothe and several other expenses. While you may not be starving, you will not become rich by living below your means.
My definition of being rich is to have a net worth over 500K (real estate should not be the bulk of your net worth) and an income that allow you to make all your payments and still save money. I don't think you can ever achieve this financial level by making 25K a year.
bripblap
· 2 years ago
Thanks for all the comments! I know that a mortgage is more or less inevitable if you want to be a homeowner in North America, but I think my point is still valid. Because of interest, I will end up paying almost $1,000,000 for my "$450,000" house. Ideally I would save $450K and then buy with cash, and save the other $550,000, right? I know that might mean I wouldn't buy a house until I was 45, but then again, I would have an extra half mil in my pocket...
I think you can become rich making 25K per year. TFB, I'm not sure that 500K net worth would be rich if you lived in Manhattan or San Francisco or Tokyo. On the other hand, it would be a fortune in Memphis, TN (where I used to live). I know people who live well in Memphis off 30K a year, and people who struggle to get by on 80K in Manhattan. When I lived in Memphis making 30K right out of college I was able to max out my 401(k) contributions and still had money left over for investing and all the things you mention.
I guess my point is that it's largely dependent on where you live, which is a part of your choice to spend less than you earn. Living in NYC I have consciously chosen a place where that's hard to do. If I moved to a smaller town, I think I could spend much less than I earned, even if I earned less. But it is possible, since I've spent less than I earned since I was 18. Not easy, but doable, and I earned less than 30K until 10 years ago.
bubelah
· 2 years ago
Do you know that most Europeans would never consider to buy a house by taking out a mortgage? It is a strange concept for them. If their apartment in Florence cost 450,000 EUR, trust me, they pay with cash that they saved and saved..... But, remember, it is easier for them to SAVE for a house or apartment because they don't have to save for retirement and buy medical insurance, etc.... which in the US is the major drain for an average American.
TFB: Yes, most of the time, the house will appreciate in value, BUT so?????? If you don't sell it, you don't make the profit on it. And if you sell it, where are you going to live? And if you are buying a new house that is cheaper (if you move farther inland maybe) then you can consider yourself lucky, you made some bucks on your house. If your house appreciates in value, then all other comparable houses will do the same. I wouldn't count on the house appreciation value to become rich unless I move from NYC to Kansas City or similar....
The Financial Blogger
· 2 years ago
BripBlap, I must agree that 500K net worth not that much if you live in NY but still, you are better off with 500K in your pocket than working minimum wages in the same city ;-). My point was that I really wonder how you can manage to build a strong net worth if you are stuck at 25K/year. Even if you don't spend much, it is just not enough to become wealthy. You'll need to do something else in order to increase your income.
Lora, I prefer using the equity in my house to do something else (like investing) with it. So if my house grow in value by 100K, I can go to the bank, borrow that 100K for the best rate possible and make much more money with it. This is why your house should be included in your net worth.
Moneymonk
· 1 year ago
You forgot to add increase your income as you do these things. Most focus on lowereing their spending and they forgot to find ways to increase your income
All Comments
Borrow money to learn is always a great way to improve your wealth. You can get a promotion or invest better from a better education.
One last thing, you can also borrow money to invest in the market to to create a company. While being more risky than my other examples, there are several people who become rich by leveraging.
If you are making 25K and you don't spend more than you earn, you won't eat much and probably will never be rich anyway ;-)
Out of that amount, you have to take out groceries, entertainment, taxes, gas(or bus pass), clothe and several other expenses. While you may not be starving, you will not become rich by living below your means.
My definition of being rich is to have a net worth over 500K (real estate should not be the bulk of your net worth) and an income that allow you to make all your payments and still save money. I don't think you can ever achieve this financial level by making 25K a year.
I think you can become rich making 25K per year. TFB, I'm not sure that 500K net worth would be rich if you lived in Manhattan or San Francisco or Tokyo. On the other hand, it would be a fortune in Memphis, TN (where I used to live). I know people who live well in Memphis off 30K a year, and people who struggle to get by on 80K in Manhattan. When I lived in Memphis making 30K right out of college I was able to max out my 401(k) contributions and still had money left over for investing and all the things you mention.
I guess my point is that it's largely dependent on where you live, which is a part of your choice to spend less than you earn. Living in NYC I have consciously chosen a place where that's hard to do. If I moved to a smaller town, I think I could spend much less than I earned, even if I earned less. But it is possible, since I've spent less than I earned since I was 18. Not easy, but doable, and I earned less than 30K until 10 years ago.
But, remember, it is easier for them to SAVE for a house or apartment because they don't have to save for retirement and buy medical insurance, etc.... which in the US is the major drain for an average American.
TFB: Yes, most of the time, the house will appreciate in value, BUT so?????? If you don't sell it, you don't make the profit on it. And if you sell it, where are you going to live? And if you are buying a new house that is cheaper (if you move farther inland maybe) then you can consider yourself lucky, you made some bucks on your house. If your house appreciates in value, then all other comparable houses will do the same. I wouldn't count on the house appreciation value to become rich unless I move from NYC to Kansas City or similar....
I must agree that 500K net worth not that much if you live in NY but still, you are better off with 500K in your pocket than working minimum wages in the same city ;-). My point was that I really wonder how you can manage to build a strong net worth if you are stuck at 25K/year. Even if you don't spend much, it is just not enough to become wealthy. You'll need to do something else in order to increase your income.
Lora, I prefer using the equity in my house to do something else (like investing) with it. So if my house grow in value by 100K, I can go to the bank, borrow that 100K for the best rate possible and make much more money with it. This is why your house should be included in your net worth.