Blog 1:  The secret to being rich!

The U.S. economy is a capitalist one.  One of the foundations of a capitalist society and one of the freedoms we enjoy in this Country is that every individual has the power and ability to earn as much money as they want!  Now, some people have it harder than others either because they were immigrants and had nothing (like Nonna and Grandpa) or had little education, or grew up with other challenges.  But the good news is that I believe every single person has the ability to be rich!

You may be wondering, what does rich actually mean?  There are many definitions of rich.  You can be rich in looks (like your dad), you can be rich in love, you can be rich in talent, there are endless areas in which one can be rich.  But for the sake of this post, the rich I am talking about is the traditional sense of the word, good ole fashion greenbacks, moola, scratch, cheddar, dough, cabbage, money!

I don’t think aspiring to be rich is necessarily a good thing.  If you take it to its extreme, it may cause you to pursue work you hate, it can cause you to drive too hard and not enjoy time with your friends/family or “smell the roses” as they say.  But if you master money, your life will be a whole lot easier than if you don’t.  It’s that simple.  Money problems are the #1 cause of divorce and can lead you to feel helpless if you dont control it.  But if you control money and know that every single dollar that comes into your possession has a purpose, then you are way ahead of the game.

For me, the purpose of obtaining wealth or “being rich” has a singular purpose.  That purpose is to buy my freedom.   Freedom to do what I want, when I want, with whom I want – period!  Having money gives you a certain level of “F.U.”  You get in a business situation you don’t like, have a boss you hate, or whatever it is.  If you have F.U. money you don’t have to put up with nothin!   To me, that is the purpose of obtaining wealth, to buy your freedom.  There is nothing more valuable than time, because we don’t control it.  So to be able to dictate how you spend your time, to me, that is the purpose of obtaining wealth, or being rich!   

There are four secrets that I will share with you based on my experience:

  1. Spend less than you earn
  2. Avoid debt
  3. Invest the rest
  4. Marry the right person (if you decide to get married)

Let’s dig into each of these briefly, perhaps in future blog posts I will dive deeper into each one separately.

Spend less than you earn:

    • This might sound simple, but did you know that 63% of Americans couldn’t come up with $500 in case of an emergency?  If they had a car repair, they would have to put it on their credit card and would not be able to pay it off immediately.  63%!!  In addition, the median household income in the U.S. is almost $75,000.  Wait a minute, you are telling me, if you make $75,000 you can’t come up with $500 in an emergency?  What the heck is going on???  It’s because most people value consumption.  They want to spend money on crap they don’t need, and more importantly can’t afford (more on that in a second).   If you start out after your first job and plan on saving 25% of your income you will be rich before you know it.  You will have F.U. money even sooner!   My suggestion is that when you start earning an income, pay yourself first.  Paying yourself means saving some portion of your income.  Remember, 100% of your earned income will be spent on something.  How much of that do you want to spend on “stuff” vs. “your freedom.”  As you start earning more money, spend half of it, save the other half.  So your lifestyle increases a little bit, but not all the way to the higher income.  This is why you guys always thought we were “poor” growing up.  This was why your dad was “cheap.” It’s because I was paying for your mom/I freedom.  I think we had a pretty good balance.  We always went on vacations each year, you guys got to do all the competitions you wanted growing up, so I feel really good about the balance we struck as a family.  We spent money, but just never all our money!

Avoid debt:

    • The best way to spend less than you earn, is to avoid DEBT. In our society, money is available to borrow very easily.  Too easy in my opinion.  If you look back in history, as soon as people were able to get a loan, very easily, the prices of those things skyrocked.  People used to have to pay cash for a house or a car, but now loans are pretty easy to get and therefore demand goes up, and so do prices.  The worst of all is college tuition.  As soon as it became acceptable to loan an 18 year old money for college, that was backed by the U.S. Government, the costs of college has skyrocketed.  The simple reason is that people will spend to the limit of their available credit, NOT what they can afford.  Don’t be one of those people.
    • Credit cards are the killer!  See the table below from Capital One (big credit card company), about the average credit card debt by generation.

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  • If you remember one thing from this blog is please do not carry credit card debt.  If you can’t afford to pay cash for whatever it is you want, then save up until you can. If you want to use a credit card to earn miles, rewards, etc (like we do) that’s fine.  But you MUST pay off the bill at the end of the month.  If you do not pay it off, then you get charged interest, like 20%.  We will talk about compounding when it comes to investing (this is the concept that interest earned compounds on itself over time). Well it works the same way with credit card debt, it keeps adding on top of its sell and can snowball out of control.  There is a reason every other commercial on TV is a credit card company!  Credit cards make the credit card companies right, not the user! This is the number one killer of you being rich.   There are other types of debt too, like car loans.  When you were young, we did take out a loan on the Expedition – remember that beauty??   That was the last car loan we took out because it almost buried us.  The payment was $700/month and we could barely get by.  See above about living on less than you make.   My recommendation to you is if you want a car, save up and buy it cash.  It may not be a pretty car at first, but there are plenty of decent used cars you can buy with cash.
  • There are also school loans.  Most people have to borrow to go to college.  The average student loan amount is almost $40,000!  I am glad the both of you will graduate without having student loan debt.  Marco, I know you will have to get student loans for Med School.  My advice to you is to borrow as little as possible, work if you have to and when you get your first job, put paying this debt off at the top of your list!  Treat it like a bad disease you need to cure!  
  • The only type of debt that is “OK” is probably mortgage debt.  A mortgage is to buy a house.  They are typically the lowest interest rate and last 30 years.   We have mortgages for our houses, there would be no way to save up all the money needed to buy a house without a mortgage.  My advice is to get the smallest house that is reasonable, so you don’t stretch yourself too thin and are able to continue to invest.   I may write a blog post in the future about what I think about home ownership, but for now, I think I will leave it at that.

Invest the rest:

  • Ok, so now you are paying yourself first so what should you do with it?  First of all, if you start saving $500/month in the stock market, you will have $1.1M in 30 years.   Now wait a minute.  $500/month over 30 years is only $180,000 invested.  So how is that $1.1M??  Dad has definitely lost it!  That is the beauty of compounding and time.   So when you earn $1 in the stock market, that gets reinvested and now you earn money not just on what you originally put in, but that added $1 you just earned.   You do that over and over again for many years and it’s a snowball that just picks up steam and can’t be stopped.  The good news, it works 100% of the time and its math!  The bad news: it takes time and patience.  This strategy will not make you rich overnight…but it will make you rich overtime.  And before you are actually rich, you are gaining strength along the way to say F.U.  You might have to find another job, but at least you don’t have to stay in a position you hate just because you need the money!  You have FU money in 10 years, and you can take more chances!   Like I said, I will probably write many blogs on investing, so I will stop here for now.

Marry the right person:

    • What the heck does your spouse have to do with getting rich, Dad??   I am not talking about marrying someone who is already rich either!!!  Imagine for a minute if you were following this path, saving, investing, avoiding debt and the person you married is doing the opposite.  The spouse is spending, taking out loans.  Every step you take, you are going to take two steps back.  Money problems are one of the top causes of divorce, so it’s a real thing.  Of course marry for love, not money.  But don’t think for one second that it doesn’t matter.  At some point, you need to have a discussion with the other person to understand their thoughts on this stuff.   You can see it when you are dating and see how they treat money and “stuff.”  Your mom and I probably didn’t talk enough about money before we were married, we talked about values and how we’d raise you guys, but I don’t remember explicitly talking about money.  I know I didn’t grow up with any money (we only took one family vacation when I grew up) and I know that your mom also didn’t have money growing up.  So I know we appreciated having money and I know your mom was a saver – so I got lucky in many ways, but also because your mom/I were on the same page about money.  I recommend if/when you get to that point in your life, that you make that a consideration.

So that’s it, pretty simple right??  It IS simple, but it’s NOT easy.  There are going to be people all around you spending everything they have on “cool stuff.”  You are bombarded constantly with ads to get you to consume.  In many ways the odds are stacked against you.  So you have to focus on what the most important thing in your life is.  As I said, for me, money is about buying freedom to do what I want, when I want with who I want.  And along the way, you might be able to accumulate some FU money – you never know when you might need it!

OK, your turn.  If you have any feedback, questions, comments, fire back at me!

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