Can you imagine a day when you are totally debt free? Can you imagine a day when you free like you are rich and wealthy? How about the day when you don’t have to imagine, and you have become free from money controlling your life. This day can and should start early in life. Preferably before you start college, and you start learning about the value of money and saving in high school.
The key how to be rich and wealthy has nothing to do with your salary and everything to do with your spending habits. The day you learn to save and pay yourself is the day you start down the road of wealth. My definition of rich and wealthy is to be debt free and saving and investing. When you control your money, and it doesn’t control your life then you have become rich and wealthy.
This is Part II of the short series. I also wrote about “Why You Will Always Be Poor and Broke and Never Wealthy and Rich.”
Great Spending Habits
Here is the only difference between someone that starts down the path of debt and someone who starts down the path of wealth. The rich person has an intense hatred of debt and stays as far away from it as possible, and they pay themselves first. Those in debt often are too tempted to have stuff first. Again, it is all a mindset. Can you control your spending, so you think to save first instead of spending first. It is honestly that simple. Let’s compare two people making the same salary but one is broken and the other is rich.
Same Salary but Two Different Outcomes
Two new schoolteachers have just started class and making $30,000 each but despite the same salary and paycheck one is poor and the other is rich (by rich I mean no debt and has money to invest). Again, that is my definition of rich.
Rich Teacher
Rich teacher earns $30,000 a year so around $2,500 a month before taxes. Not a lot but it is doable for their first job. Rich teacher graduated college with no debt. Between a small scholarship and working during school rich teacher was able to finish without having any debt. They didn’t go to the top school in the world, but it got the job done and was affordable. It was a lot of hard work and rich teacher didn’t get to hang out with friends as much but knew it would be totally worth it. At the time it was really hard, but now that rich teacher is out of school, they are so glad looking back at that decision.
Rich teacher got really excited when they received that first paycheck and thought about getting a new car but decided that they should stick with the car they already have because it is already paid off. Rich teacher decided on renting a two-bedroom apartment close to school so they can walk on most days and has a roommate because they want to split the costs. After all rich teacher is just starting their first career job and isn’t home that much.
Rich teacher would love to go out with friends every night but limits it to just once a week and even then, doesn’t spend much. Rich teacher is also taking their lunch every day to work instead of going out to eat with some of the other teachers every day. Rich teacher also decides to pass on picking up the morning coffee every day and skipping the local gas station during the first break to fill up the large mug with soda.
Rich teacher needed a new phone, but decided against standing in line to get the latest and supposedly greatest phone that has come out costs as much as one month of rent. Rich teacher found a great deal and keeps the monthly cost down extra low. Rich teacher has decided to not hook up the cable or satellite at home right now. Rich teacher is busy and really doesn’t have time but can watch free TV over-the-air or on the iPad for free with apps. They also have Netflix or picks up a Redbox rental when they have some time.
Rich teacher was offered to teach a few classes in summer which is great because it will add in some extra money to save. Rich teacher didn’t have this money in their budget and since it is “extra” income it will all be saved and invested immediately. Rich teacher would like to have all three months off in the summer but giving up a few weeks will pay off in the long run. Rich teacher was invited by friends to go to Cancun but passed this time around because it wasn’t in the budget but can plan for it another time.
At the end of the month Rich teacher is able to save nearly $600 extra, despite the low salary, because they do not have a student loan payment, they have a roommate, they don’t have a car payment, their phone payment is low, and they have no credit card payment. Rich teacher knows how important it is to start saving and investing in their early 20′s and sets up their retirement accounts.
They contribute up to their match and also have started a Roth which they are trying to max out. Rich teacher also opens up a low-cost mutual fund to have money go in to on a monthly basis. It isn’t a lot at first, but it is a start. Rich teacher knows that $600 is a good start but isn’t the final goal and wants to keep spending in check so they can continue to increase contributions.
Being able to save and invest is a big deal and rich teacher knows that compound interest starting in their early 20′s and going for the next 30 years is vital. That is what rich teachers’ parents did and they retired healthy and happy early on in life.
It is All Mindset
The only differences between someone who is rich, and poor is their mind set and of course their spending. When you receive money is your first impression to spend it or to save it? A spend first mentality will most likely not make you rich (again my definition is out of debt and investing). Someone who actively saves and tries to control costs is more likely to be successful. Again, it doesn’t matter on salary.
I know people making lots of money who have nothing, well they have lots of stuff, but they do not have anything to fall back on and eventually they pay the price. They are spending everything they have and often more as soon as they can.
The Health and Happiness of the Saver
When you have any extra money or automatically save early in life you find out how easy it is to do. In fact, it drives you crazy when you make a purchase and you do not see your savings go up at the same rate as it has in the past. You love to look back a couple of years and see all the growth. When the car breaks down it isn’t a big deal.
You have more than enough money saved so there is no panic, you just take care of it an move on. It sure is nice not having to worry about when that next paycheck is going to come. When you receive a raise, you don’t change your lifestyle at all. The only thing you do change is your savings rate. Now you are that much closer to ending your career early.
You see a lot of people really stressed out at work and you are so glad that all you have to worry about is your new job. The finances are set, and budgets are good and all you need to work on is your career. It is so nice not to have that extra pressure.
The great thing is the person you have started to date has the same philosophy of saving as you do. You know how important that is and are glad to share your vision on money and spending. You share that early in the relationship because it is a big deal to you and your long-time happiness. You still go out and buy things here and there, but it doesn’t ultimately lead to your everyday happiness. You are happy because things are just going well in life, and you are in control.
Reality Check for Rich Teacher
Rich teacher all of a sudden at 32 years old has a huge reality check. They have been saving so much it looks like they may only have to teach until they are 50 and be able to call it a career. That is 10 years earlier than their dad retired and dad retired healthy, happy, and rich.
It’s been nine years since school and their income has improved substantially. They earned a masters online and now make over $45,000 a year. Instead of $600 a month they have now been able to save half of their salary. Rich teacher has bought a house but is renting out the basement. The folks in the basement are paying for more than half the mortgage. Rich teacher was also able to buy a condo nearby as a rental property and has been picking up a few hundred dollars a month from that as well which helped pay for the extra in the commute and the extra in utility costs of the new house.
Rich teacher could have purchased a much bigger house but wanted something modest and affordable. After all the goal isn’t a big house with a huge mortgage. Rich teacher has a bigger goal of retiring early and traveling. Rich teacher is doing the math and wondering if they should see the condo early and may be able to retire in their late 40′s, but maybe will just keep working because they enjoy the job. They are being considered for a principal position and that will more than double their income so life it really cruising along.
Rich teacher has been saving continually and already has money set aside for their children’s education as well. Because they started so early, they will have most of it already set aside, but they are going to tell their children that. Rich teacher wants their kids to work for it and value their education as well. It is their education after all, and they need to learn the value of hard work and the importance of money.
Rich teacher went to the school district’s retirement consultation meeting and when they had a one-on-one meeting with an adviser the adviser actually started asking Rich teacher how they did it. How could they have so much saved away and yet they are a teacher? Rich teacher smirks and talks about their hatred of debt. If you don’t have debt early on you can start paying yourself. Rich teacher loves helping others and frequently gets asked on money advice.
In fact, Rich teacher has been visiting with the teacher who has taught next to them for the last 9 years. Poor teacher came in and recently told them of the stress going on in their life.
Poor teacher told Rich teacher about how they started paying off their debt and their one regret.
“I wish I had started this sooner.”
Rich teacher again smiles and nods. They know the sacrifice and saving early in life has paid off. They knew early on that the key on how to be rich wasn’t their salary but staying away from debt. What a difference it makes to save early.
Two people with the same salaries yet they are in two completely different situations. It is all about your mind set and spending.
