I’m sure there have been many books on the subject of secrets to getting rich. But I don’t really think that the secret to getting rich is really that complicated. What makes the rich get and stay rich and the poor stay poor and get poorer is the difference in the way they think about money. Or, more precisely, it’s how they prioritize money.
Today I picked up Glenn Beck‘s book Arguing With Idiots. I find his books, enlightening and entertaining. I can always find something useful for trumpeting the conservative cause and pointing out the idiocy of liberals. But, what I really like about Glenn’s books is that he is never afraid to throw down with the lowly, to be one with the lunacy.
Today, I was reading the chapter on home ownership. It hit me like a ton of bricks. The idiot I have been arguing with for the last 12 years is me. Twelve years ago, I received an inheritance. After zeroing my debts, I still had six figures in my bank account. Life was good, really good. Then, I allowed someone to convince me that there was a killing to be made in real estate. I have been kicking myself ever since.
Owning a house is good for one purpose only, and that is to have a really big family in it. 60 years ago, when everyone had a big family, owning a house was a good investment. After all, you can’t very comfortably cram your eight or ten children in a two-bedroom flat. Plus, land was cheap and property taxes were low or non-existent. And the average home cost about the same as the average yearly wage.
60 years later, owning a home isn’t the best choice for most people. Families are much smaller or non-existent. Taxes are skyrocketing. Building codes and regulations have pushed the cost of the average home to five or six times the average yearly wage. Yet, the government still pushes the idea that everyone should own a home. In fact, they pushed so hard that millions of people bought homes they couldn’t afford at housing bubble prices. When they promptly lost said homes, it created the economic mess we have today.
The reason most of us want homes is because we are greedy. We want a lot of things, so we need a house big enough to hold all these things. But, I have discovered, in my own case, that having a home breeds the hoarder in me. And it started a cycle of buy and build. The more I needed to work on the houses, the more tools I bought. The more tools I had, the more space I needed in my house.
So, what does this have to do with the secret to being rich? Simple. I had enough inheritance to rent for twenty years. That means that, over the last 12 years, I could have not even bothered to work. In the meantime, I could have invested the majority of my time growing my money. By conservative estimates, I could be sitting on millions by now, with nothing to spend it on but myself. And, since I wouldn’t have any houses to keep up, that means that my world tours would have already been numerous.
Rich people get money, not things. They use their money to hire good lawyers, good investors, and they make more money. Poor people get things, not money. They are so wrapped up in things that they even buy things when they don’t have any money. They borrow rich people’s money at high interest. While they are enjoying their trinkets, the rich people are enjoying living off the interest the poor people pay them, all the while not spending a dime of their own money.
This is the big myth about rich people. We see them spend all kinds of money on cars, homes, jewelry, vacations. We poor people think that, if we want to be rich, we should imitate them. But, truth be told, most rich people don’t spend any of their money. They figure out ways to spend someone else’s money, usually the money of the poor people who are sucker enough to by into the ad hype about living the good life.
Here’s something most people don’t understand. Today, renting a house is much cheaper and much less stressful than buying one. And, guess what? You can rent just about anything else that you think you need for only those times that you need it. Need to take a long trip by auto? Instead of leasing a car for $4000 over two or three years, why not just rent a road car for that long trip for $300? You save yourself $1000 a year on lease costs, plus another $500 a year on insurance, and another $500 on gas and tires, etc. Now, take that $2000 a year and invest in at 12%. In ten years, you’ll have a nest egg of about $40,000 after taxes. If you still want a road car, you can grab a late model used one for maybe $5000 and still have $35000 for mad money.
I have a new rule in my life. I wish I’d had it 12 years ago. Pay only cash, and never buy new. I wish I could invest the difference, but all my money goes to pay for the boat anchors. As Beck points out, houses limit opportunities in life, because a house is a chain. A house is not liquid. You can’t just sell 40% of it when you need money for something. And you can’t just up an go wherever and whenever the opportunities knock. Houses make you think like a poor person–about your things–instead of like a rich person–about growing your liquid assets. Liquid assets, like money, free you from worry about paying for things. A house is a thing you worry about, for which paying will free you from your money. Own a house, and, in reality, the house will own you. Money is a tool. A house is an albatross.
Another example of a waste of money and hanging an albatross around one’s own neck is the college or university education, especially one gained without a clear path to employment. Ads for schools of higher learning like to trumpet that you will make an extra $200k on average with a college degree. But, buyer, beware. Just like a $200k home ends up costing you $700k over the life of the mortgage, so your student loads will end up costing you a lot more than the extra $200k you earn over your lifetime. The average McDonalds employee who stay with it for 20 years and lives in a cheap apartment will be sitting on more than $200k in savings at about the time you dig yourself out from under your college debts–and that’s if you are lucky enough to find a decent job in your field and stay employed.
It’s called the time value of money. I kick myself every day, because I already knew about it and didn’t follow my instincts. I bought the hype. I drank the cool-aid. Now, I’m hoping that I might help a few people not make the mistakes I did. In the future, you know I have a plan to change my life. It’s never too late to stop being an idiot. Colonel Sanders made his fortune after 65, the age when most young people feel you are at death doorstep.
The key is to always think about time as money. Don’t buy things on time, you’re wasting money. Every hour you waste on “free” entertainment costs you whatever you could have earned in that time. Every dollar you save by doing it yourself that take five minutes longer than if you have someone else do it actually costs you one or two dollars in lost revenue. Everything has a cost. Nothing is free. Things are much more expensive than the price tag. Driving an extra four miles one way to save three cents in gas costs and extra $400 in car expenses, which more than offsets the $0.60 you saved on the gas. Driving to four stores to find an item for $5 less cost you two hours of time (@ your value per hour) plus more than $5 in car expenses. More importantly, you only have so much time, which is really priceless.
OK, fellow poor people, want to be richer? Stop thinking like poor people. Learn to put the real cost on everything that you do. Then, learn to do the things that really don’t cost. Leave your life of slavery to things. And don’t forget to teach your children about the time value of money, and the real price of everything. Remember that being poor is caught, and being rich is taught. And, finally, remember the golden rule: the easiest way to keep the house clean is to keep it as empty as possible.