Ahhh…the rich life. We all want it but how do we get it? Even more so, what is the “rich life?” It can be many things, but for the purpose of this post, we are talking about MONEY!!! It has been said that we can be rich by having more than we need or needing less than we have. In the book I Will Teach You To Be Rich, author Ramit Sethi shares five things that he believes will help anyone live the “rich life.” Look over the following five recommendations and see how you can implement them in your life.
50/50 Split Of Money
Ramit says that a safe way to invest and pay off your debt is a 50/50 split of money. The big question always comes up for people looking to invest…”Do I pay off my debt first, invest first, or split it up somehow?” Ramit is saying that when it comes to the money you have to either invest or pay off debt, it is best to divide it right down the middle and put half in investments and half in paying down debt. Some people may argue why would they invest, and make an average of 8% on their money, when they are paying a credit card bill each month with an interest rate of 18%. The reason here is that any money you put in solid investments will continue to grow and compound over the years. The credit card debt will be whittled down over time. Putting half your money in solid investments will help you build on something that will not whittle down over time.
“Yay, I got a raise!!!”
Everyone loves a raise. “Mo’ Money, Mo’ Money!!!” The problem is that most people’s first instinct is to buy something or raise their standard of living. They figure since they are making more money they can afford more things. Then, before they know it, they are tight with money again because now their cost of living has gone up.
Ramit says, “A mere increase in income is not a call to change your standard of living.” Just because you got a raise does not mean you have to change your standard of living. Why not take the raise and pay down some debt and invest in the stock market with the 50/50 Split of Money? It is highly recommended that you only buy more things with the money you have earned from your assets, not your job. Congratulations on getting that raise, just don’t go spending it foolishly.
A Better Financial Position
A “better financial position.” Well, what is that? Look at it this way. You know how you may be unhappy, financially, with where you are now? Well, what would it take to make you a little better off? Only you know your situation, so only you can answer that. Ramit recommends that you use your raise to put yourself in a better financial position. An extension of the “Yay, I got a raise!!!” section, Ramit is re-iterating that you should use your raise to get out of debt or invest more.
Often times, a raise gets us all excited and when most people are excited, they like to shop. Don’t fall victim to this. Act like you didn’t get a raise. Don’t go out and spend, spend, spend. Use it to invest and pay off debt.
When To Buy A House
Should you buy a house or rent a house? There are definitely different schools of thought on this. One says you should NOT throw your money away by just renting something…so buy the house. Another asks, why tie yourself down with a mortgage and overhead cost for something that you don’t plan to own very long…so rent.
Ramit’s guiding wisdom says to buy a house only if you plan on living there 10 years or more. Of course you can find some exceptions where someone bought a house and within 2 years, the value has really gone up, so a profit is made. But the general rule of thumb is to only buy a house if you will live there 10 years or more. This should give you enough time to sell when the market is good and give you the most bang for your buck.
What About Real Estate???
I have heard all kinds of recommendation around real estate and I have considered it myself. I have heard that real estate won’t make you wealthy. It will only make you wealthier. I have also heard that you shouldn’t wait to buy real estate…you should buy real estate and wait. So, what should you do?
Ramit shares that real estate can be a pretty poor investment. That is not saying that you can’t make money there, but it is not an overnight win that most people are looking for. Real estate can be a great investment if the timing is right and the buy is good. The bad thing is that you have to understand these things and know when to buy.
Unless you plan on researching this and becoming a real estate guru, I would hold off on the real estate angle. If you want to invest in real estate, invest in REIT’s (Real Estate Investment Trusts). This takes some of the guess work out of it and allows you to own portions of real estate that is managed by someone else. I plan to wait on real estate investing until I am WEALTHY!!!
You can ask anyone what you can do to have a “rich life” and you will get a hundred different answers. Do I believe Ramit has the right answers? I think he has really good answers. And I think you can’t go wrong with his guidelines, but you have to be patient and persistent. You can’t start doing these things today, and start living the “rich life” tomorrow. It will take time. But if you are patient and follow these guidelines, I believe the “rich life” will be within your reach!!!