On the face of things, getting rich seems to be a case of just accumulating money. Maths alone might tell you that saving as much cash as possible is a sure fire way to become what you’d deem ‘rich’ in anyone’s eyes. Therefore – why aren’t more rich people that way through their savings activities? Did Warren Buffett build an empire based on a cash ISA? Probably not.
Therefore, I thought I’d take a quick look at a question that plenty of people still seem to be asking. Can you get rich just by saving? Is investing a better route towards building a fortune? What exactly does anyone mean by ‘rich’ these days, anyway? Let’s dive in and take a look.
Can You Become Rich Just By Saving Money?
Let’s cut to the short answer – no. Can you become rich by saving money in a specific type of account? Probably not. The fact is, there is more to growth of wealth than just putting money aside for a rainy day. Yes – it’s certainly something you should be doing, but with fortune-building as your focus, you’re going to need to tackle things from a different angle.
Let’s consider a simple calculation. If you saved £10 a day – a big chunk of money for some people – how long would it take you to become a millionaire? Around 274 years. Even if you saved £100 per day – even more of a squeeze – it’d take you around 28 years of your life to reach millionaire status. Investing, however, is much more likely to get you to your target a lot quicker.
Ramit Sethi, author of I Will Teach You To Be Rich, extols the virtues of investing. Sethi’s general viewpoint is that you should be taking control of everything that happens to your money. Even if you only invest £1 per day, it’s worth it. It’s worth taking investment risks if it means there’s a chance to see growth. If you’re just going to throw your money into a savings account, you’re not going to get any extra money on top bar a measly portion of interest.
How Much is Considered Rich?
So – how much is rich in this day and age? A million probably doesn’t travel as far as you think it might. It all depends on how you spend your money. It’s very easy to burn through a million based on the current cost of living.
Various studies disagree on how rich ‘rich’ actually is. It seems a good ballpark figure is somewhere around £2.5 million. This means that you’ll have enough money to make passive income through investments and still make a return. It also means you’re not going to lose all your wealth through taxes or monthly expenses.
Therefore, you’re only as rich as you feel you are. That’s more than a bit corny, but it’s true.
Simple Steps to Grow Wealth
So – with this in mind – how on earth can you expect to become rich? Saving is a good start, but it’s not the be-all and end-all. You’re going to need to look at the bigger picture. What are some of the key areas in your life in which you can drive extra revenue and income? Where could you save money? What’s likely to pay off for you in the long run? Let’s take a quick look at a few simple steps to building wealth.
Focus on the Big Things
By the ‘big things’, I mean the big purchases. Focus on areas of your life where you could drive more income with minimal effort. Could you save money on bills? Will it make sense for you to invest money in property? Could you actively ask your manager for a raise? There are risks involved when you look at the bigger picture, but as Sethi says, it’s only you that has any kind of control over how you’re growing it.
This means you should be ready to seize opportunities with both hands. Cutting back is not going to do enough to build your fortune in the long run. It’s a good start, but you need to work to a major plan of action. Is your bank supporting you enough? Are there opportunities for you to spend money now, and reap rewards later?
Create a Monthly Budget
Creating a monthly budget is a great start. This will let you see where your money is going. It’ll also help you understand your habits. Here, you’ll be able to identify if you have any free money for saving or investing. You’re going to need to work out your absolute base amount for living. Give yourself a cushion, and make sure to drive for more income if you really don’t have any kind of wiggle room.
Investing, of course, is how many, many people become millionaires and billionaires. Becoming a wealthy investor will take a lot of time and work. However, if you start low, you’ll be able to start analysing risk from the lowest, most base level – as Sethi, again, states, getting started is the most important start – invest something, anything, even if it’s pocket change. This is worth the risk, on balance.
Start a Side Hustle
You should, of course, consider supplementing your income. If you’re really unlike to eke a raise out of your boss any time soon, look at side jobs and projects you could do to drive money into your monthly budget. Do you have a talent that’s going to waste? Are there items or products out there you could invest in and sell on at a profit?
Think carefully about what you are going to need to do to supplement your income to the level you need. I’ve taken a recent look at ways to drive up your income through side jobs and projects. Why not take a look?
Can you get rich just by saving? No. However, it certainly can’t hurt. Therefore, make sure to check your budgets regularly, set up investments, and be sure to drive for every last penny. It’s only you that’s going to make a difference to your wealth. Most millionaires get there through hard work and experience – isn’t it worth making a start?