I’m often asked how I’d advise a young person who said that they were committed to getting rich.
I know most people want a shortcut to economic heaven where the inhabitants are rolling in money. I was recently reminded of this and how we want fast answers to complex matters when I saw a friend carrying a book entitled Buddhism for Busy People!
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So, what follows is a “Busy Person’s Guide to Getting Rich”. You could call this a 1-page plan or a 7-step blueprint for getting rich.
First, write down what you want in life, such as a home, a car, a great job and plenty of spare cash so you can help you and the people you care about. These are your goals.
Second, you have to create your personal balance sheet. Stay with me on this as I’m going to make this understandable. A balance sheet shows your assets - stuff you own that has value from cash to cars to jewellery and so on. You then add up your debts and take this from your assets and you end up with your equity, or what you’re really worth in dollar terms.
Third, work out what you spend each week and what you spend it on. This is contained in a budget but let’s call it a “where your money goes” checklist.
Fourth, try and GST your life by cutting your spending by 10%. If you spend $50,000 a year, your personal GST gives you $5,000 to invest. One less cup of coffee a day could save you $25 a week or $1,300 a year.
Fifth, if you took this $1,300 a year and put it in your super fund at 8% for 30 years, it would give you $78,000. But if you do this for 45 years, it turns into - $173,000. And that’s adjusted for inflation. So in 45 years you’d be able to buy the same stuff as you could today.
Sixth, if you want to have access to the money that you’ve saved, you could invest it in an exchange traded fund, such as IOZ, which gives you an investment in Australia’s top 200 companies. On any day, if the stock market rose by 2%, you’d be 2% richer. History shows that the stock market rises by 10% a year on average over a 10-year period.
This chart shows what I want for you. Between 1970 and 2009, that $10,000 rolled into $423,439 and it can happen by automatic pilot by simply letting the money snowball in something like a good ETF such as IOZ. (Here’s more info on Australia’s best share ETFs).
If you follow the blue line on the chart below, it shows how the $10,000 ended up being $423,439 by one year after the GFC forced a crash in the stock market by 50%.
Seventh, try to be patient and buy great quality assets - properties, shares, etc. - when everyone is negative and gloomy. As the world’s greatest investor, Warren Buffett advises: “Be fearful when others are greedy and greedy when others are fearful.”
If you adopt my 7 steps guide to getting richer, you will get rich over the long term. May the riches be with you.
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