You’ve read the blogs … you’ve bought the books … you’ve talked to your financial advisor (your wife).
They’ve all told you that you need to pay yourself first! So you are … 10% of your gross salary !
You’re putting some aside in your 401k (with some employer match) and you have a little change going into the cookie jar next to your bed.
Great!
You’re already doing two-and-a-half times better than what CBS News calls ‘most people who only save 4% of their salary”.
But …
… it won’t make you rich!
It will stop you from being poor and may even fund a retirement if you start early enough and are willing to take a 30% pay cut.
The problem is, you can’t just save yourself to the retirement of your dreams on the average salary … you have to at least earn more and save most of the extra.
Look at it this way … the amount you can save is limited …
… limited to less than 100% of your salary, and for most people, limited to something between 0% and 20% of their salary.
But, the amount you can earn is only limited by your imagination and your capacity for hard work.
Here are some examples of ways that you can increase your income:
– Change jobs (maybe)
– Work longer shifts (yuk)
– Ask for a payrise (why not?)
– Take on a second (third?) job (horrible)
– Join an MLM ‘opportunity’ (do your homework carefully!)
– Renovate some houses (now may be the time to get back in)
– Start trading some stocks (better know what you’re doing?!)
– Start a business ‘on the side’ (my favorite!!!)
Whatever you choose: Start Small … Finish Big!
The point is not how YOU should do it, the point is you CAN do it … if you are prepared for some hard work and sacrifice now for a better future. Are you?
If you keep paying yourself first at only 10% of your current salary in your day job, and 50% of the additional money that you earn (after paying off debts), THEN …
… you just may retire RICH!
Let me know if you think this can/can’t work for you …
I agree that at best, putting money away in a 401K and perhaps a Roth IRA, will let you maintain your standard of living, and hence you aren’t necessarily rich. Hold on a minute, I seem to recall someone putting forth a definition for being rich, hmmm, seems I have it right here:
“So, to determine when you are ‘rich’ you first need to determine your Number … that is the amount of money that you need to have ‘in the bank’ (actually in Passive Investments : bank accounts, investment properties, stock market … anything that makes YOU money even while you are asleep) to produce enough income for you to live your current (or desired) lifestyle for the rest of your life (which means, the amount has to be indexed for inflation).”
Seems a well diversified 401K could do that for you. So saving yourself rich is a possibility per your own definition.
Also, define 30% pay cut. Let’s see, I’m not putting in 15-20% to my 401K anymore. I’m not putting in Social Security or Medicare to the tune of 7.6%. I’m not saving for the kids college at 3-5%. So that’s about 25.6 – 32.6% I’m no longer paying out when I retire. If I’m smart and paid off the mortgage right before I get the golden pocketwatch, that’s probably an additional 8-12% of my monthly I don’t have to worry about, leaving me with 33.6 – 44.6% of gross salary I won’t need to maintain my standard of living. If you do it right and smart, there is no paycut, and perhaps even a pay bonus depending on the job and if they have any defined benefit plans.
However, I do agree that the more you have, the better off you can be, especially for those unexpected expenses and honestly, I still wouldn’t call myself rich, but like you stated in the other article, I’d consider myself well off.
You hit the nail on the head, Peter! I define ‘wealth’ (call it ‘rich’ if you like) simply as having enough to income to fund your ideal retirement [ http://7million7years.com/2008/02/05/a-retirement-dream-australia/ ] until you die without ever NEEDING to work again …
… if your idea of an ideal retirement is to sit on Byron Bay, Australia, living out of your car and just surfing every day – as MANY do, quite happily, I might add – then you’re probably already ‘rich’.
For most people, it takes a little more … and, for many people, it takes FAR more than they are currently on track to save!
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The problem with this line of reasoning is that, although it may seem easy to someone that has already done it, earning more income is the problem, not the solution (I felt the same way after reading Brip Brap’s post also).
Everyone (and especially those that have taken to reading personal finance blogs) already knows that more income is going to help you have more money, but in some cases you might as well be saying that the easy way to save more is to “just” start saving 90% of your income.
Your list:
– Change jobs (assumes you can get a higher-paying job somewhere else)
– Work longer shifts (only works if you get compensation for overtime)
– Ask for a payrise (what about when they say no?)
– Take on a second (third?) job (horrible (you said it ;))
– Join an MLM ‘opportunity’ (don’t know much about this one)
– Renovate some houses (requires large investment capital)
– Start trading some stocks (better know what you’re doing?!)
– Start a business ‘on the side’ (requires business idea, expertise, time, capital, etc)
Also, Brip Brap listed things such as “selling old DVDs, CDs, books, etc” which is mostly a one-time income, and also seems not too profitable in a flooded (ebay, craigslist) market.
I would be interested to read a post about where to go after all of the “obvious” things are covered.
@ Peejay – if you don’t NEED a fortune, then sit back, relax, save a little, and enjoy life with what’s left over :). Else, try:
http://www.urbanext.uiuc.edu/thriftyliving/tl-increaseincome.html
http://www.thedigeratilife.com/blog/index.php/2007/11/20/how-do-you-plan-to-get-ahead-ways-to-increase-your-income/
http://www.fool.co.uk/news/your-money/manage-your-finances/2007/08/24/five-ways-to-increase-your-income.aspx
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good one