I move around quite a bit, so I rent rather than own. The reason will be explained herein if I get that far. First I want to lay out a bit about some types of people as it relates to their wealth ability. I know these types because I have been each of them at one point or another.
Most children are never taught correctly about money. They are taught to count it and to make sure they get correct change when they buy things. They are taught how to put it in a wallet and even how to borrow it to the max. That is what I was taught to do, and my first million was on paper and summed up against my debt. That is not as exciting as cash, really.
Becoming a person of money requires learning to have money. Sounds really over simplified, but that is the part kids are not taught to practice. I learned to save and even did calculations on compound interest when I was young. That model failed as inflation kicked in, so it is no longer valid. We will be talking about things that work in this post.
So one of the first things you need to do is learn to have money.
When I decided to become rich for the fourth time, I decided to have money. I stopped borrowing it, spending it, wasting it, and paying for things that I needed. Then I put that money in a drawer.
I then had money
For me, that was the first step. I adjusted my life and my necessities to reduce spending, and I continued to work like a dog as I always had done.
I cleared out a room in the place I was renting and advertised it for rent. Took in $300 per month for any month I rented it. That also required some care, discomfort, and keeping the common areas clean. I had to share when it was much easier to keep it all to myself.
I had already moved close to work, as is my usual first thought when changing jobs, and got rid of my car, car insurance, plates, maintenance, etc.. It was a luxury, not a necessity.
I killed my health insurance. I am healthy and had not been to the doctor for many years. A little risk for a couple of years.
The money immediately began to build up in that drawer. Paper money is a bad investment because it always goes down in value, you know. So I started counting it and found a gold dealer that was trustworthy, found out how much paper I would need for a one ounce coin of pure gold. When I had enough, I bought some. I paid around $800 for that first coin. Today it is worth $1.800 and I had never planned to sell it. I have bought and sold gold over the years since, but I still have that coin.
About a year later I heard about the first ever crypto-coin and started checking into how it works. I remember signing up for Dwolla and having to transfer money to something called Mount Gox in Japan. I do not remember how it all worked, but BitInstant was a big factor in how happy I was or was not at the time.
That was the beginning of it all. Small habits build wealth and one need only learn how to just HAVE money.
Most people are not looking to have money. They want to get money so they can give it to some cashier somewhere in order to obtain the next shiny object that will sell at the garage sale in a few years.
They are the ones that upgrade their gaming console every time a new one comes out. That is great for the ones who make the consoles - those people will be wealthy but not the gamer who does that.
A wealthy person can upgrade everything all the time because it a small percentage of what they have. It is like upgrading a tooth pick from wood to plastic. The wealthy can go broke if they upgrade their Corvette every year. Most do not do that because of the senseless losses. When Corvettes are like tooth picks too them there is not problem.
Spenders are the ones who can hit the lottery and will be broke a year later. They have no clue what proportions are acceptable related spending.
The guys with 12 credit cards, a mortgage, and the latest new car on a six year plan. That was me in 1990. It is possible to become rich by borrowing your way into an opportunity, but you need an insane amount of luck and a lot of foresight!
Borrowers are just spenders who spent too much and still want to do more of the same.
In general, savers learn how to have money but they get stuck at the drawer level and miss out on their money making more money for them. Some get rich but lose a lot of their wealth in paper devaluation. Many think they are making money just because they bought their house for $80,000 a decade ago and can sell it for $250,000 today. They even pay tax on the money they earned.
The house has not appreciated. In reality, it has gotten older and uglier. In asset terms, the house was worth four average new cars then, and it is worth four average new cars now. No value increase!
Frugal people are able to spend less, but their inability to spend money transfers over to their investments. Many times, they hold on to their paper and treat investments like expenditures and fail to spend money on them.
Investment money is NOT spent. It is the same as the money in the drawer but with one more physical barrier in place that keeps you from scooping it up and blowing it all, thus ruining all your hard work.
I consider what I have learned to do and I think it is a stable way of life. You could also call it a happy way of life. When you can reassess your needs and differentiate between actual necessities and the luxuries that you think you cannot live without, then you become more stable in an instant.
If your happiness is only attained by the fuzzy feeling of something new and a receipt in your pocket, then you have stability issues. The trick is not telling yourself that you cannot spend money on nice things, but that you cannot do it now.
The reward will come in the form of relaxation every month knowing that you have the money to pay all the bills this month. I worked my way up to a goal of having three months in cash in case something happened and I could not work.
Beggars and Cheats
These folks usually sometimes make money. They may even get rich, but how they make their money does not give them an escape from being one of the other categories listed in this post. They are just able to replace the bills in their wallet faster than they spend it in some cases.
Back to my road...
Soon I had enough to pay all bills for a year if I lost my job. Then I was hit with a very complex legal matter and had to take time off of work. I took a month to clear it up. I never went back.
That was many years ago. I have gotten used to never having to worry about how I will pay my bills. To me that is better than any purchase that made me smile. Why? Because it lasts.
I learned to live with very little compared to others who have the numbers that I have. I am content and I have many nice things. The most expensive thing I have bought in the last ten years had not cost even a small percentage of one percent of my net worth.
Percentage is the key as our wealth starts to build. Many see that I just spent thousands on that really nice (fill in the blank) and they want to have one too. For them, it would be 600 % of their yearly income. For me, it is a tenth of one percent.
The only difference between them and me is that I have been spending tiny percentages of what I have, and I have been happy doing it for many more years than they have. When will you learn to have money and spend tiny percentages of what you have?
I am starting you all on some very basic rules to growing wealthy. It is a mathematical formula that never fails. I have done it four times in my life. It always works if you are willing to sacrifice comfort today for super comfort in the future.
Sacrifice a tiny bit today for a long hard trip to moderate wealth in the future? That works. But readjust two words in that sentence and shorten the road and result greatly.
I said "sacrifice" not suffer. I stopped suffering the day that I readjusted my list of needs in trade for eliminating my list of worries!
Why I move around
As I said, I rent. I prefer renting because the investments that I have will all double in the years to come. If I cash them out to buy a house then I will have the opposite of capital gains to show for that decision. I will also be locking myself into a neighborhood, which can cause difficulties. And finally, I would be spending more than a tiny percentage of my total and I have learned not to do that. I have also learned to be happy with what I have.
Why I may soon move
A neighbor and I have become friends recently. He is starting to guess that I have a little more than most. I have been generous with him and have helped him out with some hard times. He and others in this neighborhood have started coincidentally "running into me" from time to time, more frequent as each month passes, and they all have investment ideas or partnership ideas for ways to make money. If we just buy a (fill in the blank), then we can...
I have never had a partnership. They sometimes succeed and then you need to argue about money with a good friend. I do not like to do that. The arguments are usually those of a spender or borrower. . .
If I cave on one idea, the next one will be bigger. . .
I have bailed hundreds of people out and they always bounce back with a bigger ask. . .
I will still be friends with these people if move. I just won't see them each several times per day. I have no problem giving them money for their ideas. I have a problem watching them fail. The ones that spend until they have zero always do and it is sad. Everyone could have money if they were only taught how to do it.
I plan to make this into some sort of series. There is much more to share. Please feel free to ask questions and I will try to cover them in upcoming posts.
1 How to Have Money
2 Debt and Percentages
3 Waste not, Want Not
4 A Practical Example
5 Cost Averaging for Investing
6 Overnight Successes