Despite the assertions of almost every article discussing ways to get rich it is largely impossible to happen fast. It is a slow and most often multigenerational endeavor. It typically begins with accumulating small savings, followed by investment in education and more substantial savings, which in turn are invested for increased monetary returns in businesses, real estate, and the stock market. The last step is commonly a multistep process imbued with failures that often offset fortunes and push families back down the social ladder.
In rare cases an individual accomplishes a large jump upwards due to wise and lucky investment. Such stories tend to capture the attention of the media which romanticize the individual’s path to financial stardom. In reality, that person’s path is exceptional, involves large amount of luck, and cannot be replicated. There will be only one Bill Gates, Mark Zuckerberg, or Elon Musk. We all know about Facebook and Twitter but for each successful social website there were numerous other ones that did not make it.
This is typical for any field; only select few rise significantly above the crowd. Most people can strive to accumulate only a small family fortune that will allow them to live comfortably. Thus, achieving financial security is a much more realistic goal than getting insanely rich.
But even this is an almost unsurmountable obstacle for most people. The upward social mobility is evermore difficult to attain for many reasons. Fortunately, there are clear steps that people can follow in order to make gradual advances and improve their family’s financial standing.
Many of the people at the bottom of the social ladder are plagued by drug abuse and criminal records. Such predicament is hard to overcome and is outside the scope of this article. But for normal people that are able to hold steady jobs there is a very clear path to greater financial independence.
Be frugal if you are starting poor
The only thing to do in this case is to minimize one’s spendings. Extreme frugality is the key to becoming more financially secure. Even on a minimal wage job a person can save some extra dollars each month. All they have to do is strip their expenses to the bare essentials. It requires great commitment and a clear goal that holds the promise of increased income. The goal could be opening a restaurant, moving to another place that offers better chance at saving money, getting a professional certificate, or even a college degree.
For such a plan to succeed people need all the help they can get from their family and friends. A non-working relative could be enlisted in the care of young children so the parents could save substantially on daycare. Co-habitation with relatives or friends is another prudent way of saving hard-earned income.
Spending minimum amount of money only on the essentials is very important strategy as well. Buying clothes second hand, turning off the heat or the air-conditioner off when nobody is at home, cutting off the cable/Internet bill, and other such measures allow for regular saving of a few extra dollars. It is almost ironic that often people with the lowest of incomes have all the cable channels available and spend most of their time in front of a giant TV screen. All the money spent on that alone could have been sufficient for a course leading to a professional certificate.
Live below your means at any level of income and save money
Living below one’s means is just another way of saying “save your money”. A big mistake people make when they see an increase in their paycheck is to find new mundane ways to spend the extra money. Nothing is guaranteed for life and one can easily find themselves earning minimal wage again. Therefore, it is important to continue saving for personal growth and financial security. When one achieves their highest possible growth they have to begin saving for the education and future of their children. Sometimes life throws lemons and the savings end up being used not as intended. Even if this happens, it is important to continue saving whenever possible.
The immigrant story is a perfect example of how things can work. Typically, the first generation immigrants do not do very well but their children are often able to get good education and advance up the social ladder.
Save for your children
This is the key for amassing family fortune. Wealth is generated little by little across multiple generations. Historically, people that are well off now had a boost from their parents and grandparents. They are not the first in their families to attain higher degrees in education and hold well paying jobs. Unfortunately, the consumerism in recent times is leading to wasting precious funds and loosing the edge given by the predecessors.
The main mistake that many people with decent earnings make is that they do not live under their means. On the contrary, quite often they live above their means, failing to accumulate fortune for the next generation. It is highly unreasonable to have a McMansion, a few expensive cars, and a boat to top it off. Often these trophies are acquired on credit and have the potential to ruin the family’s budget and financial standing.
When people are busy with accumulating material stuff at high value they often limit their commitment to the next generation with investment in their children’s education only. This is not enough in today’s age due to job insecurity and tight market. With so many higher degrees that are worth nothing it is very easy to fall behind the previous generation in earnings. If there is no cushion children of parents that did well can fall to the bottom and offset their own family status.
Educate your children to become savers and spend wisely
There is no point in saving for your children if those children did not adopt your values about family prosperity. It does not take long for someone to spend the family savings accumulated by previous generations. Thus, passing along the values and educating the next generation to continue to increase the family fortune is essential. Setbacks are inevitable but with this strategy someone in the family at some point in time will be earning enough to begin the final step in the quest to wealth.
With the first accumulated extra income it is important to make secure and protected initial investments. A few thousand dollars will not bring much in return if invested in the stock market and even have the potential to be completely lost. On the other hand keeping those dollars in a Certificate of Deposit or in Government I Bonds is much more secure. One can buy up to $10,000 in inflation protected I Bonds per year and rest assured that they will not lose their money.
Investments in large businesses, real estate, or the stock market should be reserved only for people with really large incomes. First, to get substantial returns from investments one needs to have large sums to invest in the first place. And second, it is not uncommon for such investments to perform poorly and bring large loses. Unless people have hundreds of thousands of dollars in excess each year they should stay away from such risky investments.