Level headed advice on building wealth from a comment thread on Reddit:
I’m a software architect. I used to write code but now I mostly attend meetings and committees and make rules for the other folks who write code.
And yes, building wealth is not difficult, even without a nice fat salary. Here’s a super-abbreviated (edit: oops, not so abbreviated) guide:
- Find something lucrative which you also love doing. Seriously, stop and think for a minute. Can you be happy selling shit? Writing code? Building things? It’s very important to enjoy what you’ll be doing, because if you want to make money at it you’ll need to
- Become super-good at what you chose to do for a career. Serious dedication required. Be willing to research what leaders in your field are doing and figure out how to do what they do. Critical thinking and honest self-feedback are crucial for this one. You’ll be spending long hours in study and long hours working, practicing, whatever. It won’t be worth it unless you can figure out how to have fun throughout the process.
- Don’t buy stupid shit. I make around a quarter million bucks/year and I drive a used compact car worth under $5k. It’s safe, reliable, and totally unassuming. My wife and I do not shop at department stores, we shop at costco, target, or used clothing places and we buy generic brands. We prepare our own food, we don’t buy expensive prepackaged stuff and we only eat out in moderation (this is good for you anyway). I mow my own lawn. I do my own home improvements. We don’t spend money on movies or cable TV — you can easily waste a ton of money on frivolous shit. Get enlightened, rise above the consumer crap. Truly rich people don’t need jewelry or nice cars to feel good about themselves. The only thing that really matters in life is what’s in your head.
- Calculate your budget. How much do you spend on food, including eating out? How much on entertainment? Car/transportation? Housing? Are those expenditures getting you what you want? How can you change them? Adjust accordingly.
- Take the money that would’ve gone to stupid shit you don’t need and put it into savings and investments. Your goal should be to build up a nest egg, something you could live off for 6+ months. You need this because:
- Reward follows risk. Quitting a job for a new, better job has some risk involved. What if things don’t work out? Or what if you try and fail at something ambitious in your current job? Are you the guy who can go out on a limb to make something happen? You need to start taking risks to move forward. Do it safely, have a contingency plan, but do it.
- Are you increasing your salary by 5-10% year over year? If not, figure out what you need to do to move up to the next level, then do it. Feel enabled: you can teach yourself. I did. Know that you are responsible for your income level and economic worth.
- You should be investing most of your income. There are no get rich quick schemes that work, so plan on fairly boring investments which return around 7% annually. In this market it’s better to buy than to rent (because again, there’s more risk) so do that if you can and build equity in your home. NEVER take a loan that isn’t fixed-interest rate. Put your money into index funds such as http://www.google.com/finance?client=ob&q=NYSE:VTI do NOT use broker services to “advise” you. Your investing formula should be simple: If you’re young, do diversified stock market index funds (read this book: http://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street). If you’re older and can’t ride out a dip in the market, move towards bonds and interest earning accounts.
- Pay off your house early (unless the interest rate is low enough to make investing more lucrative). Continually re-assess your financial plan and projections. NEVER proceed blindly. People not thinking about what the fuck they’re doing with their money is the #1 cause of poverty in the USA. I know people who who have $90/mo cable TV service, who buy $4 coffee drinks every day ($4 * 30 = $120/mo) — and they’re living paycheck to paycheck and are in serious trouble when their car needs expensive repairs. Above all, avoid this. Live within or preferably below your means.