Do you want to be more productive and become wealthier?
If you are happy with your level of wealth, and want the security of a regular, safe (as far as the economy can be) salary, or to run lifestyle business, then this is probably not the blog post for you. If you want to see why your current productivity isn’t giving you the results you want, then read on.
Presently, the retirement age for someone my age (in the UK) is sixty-eight. Let’s take a starting age for work of twenty, (an average between university graduates and non-graduates), a total work life of forty-eight years. The current average salary, in the UK, is £26,000, for permanent jobs.
48 years x £26,000 = £1,248,000
So, unless you manage to only spend £5,166 a year on food, shelter, entertainment, and tax, you are probably not going to become a millionaire even by the end of your career.
What about bank interest?
The return available, from a standard saving account, is just shy of 2%. You would still need to put away £1038.94 each month (and not touch it). After forty-eight years of contributions, you would finally get £1,000,007.78 and would become a millionaire.
Now, these are back of the envelope calculations.
What about pay rises and inflation?
Of course, they are important factors, but this does illustrate that you need to save a lot of money from your salary to become a millionaire, approximately half your gross average wage.
Also, who wants to be a millionaire at 68? Sure, it will give you a nice retirement, but you want to be wealthy during your life not just at retirement.
So, what about high paid careers?
Of course, you can earn far more than £26,000 a year, and some salaries may be six figures.
Let’s take a very healthy salary of £200,000 a year gross.
After tax and National Insurance, in the year 2018/19, in the UK that would be a take-home amount of £116,775.88. (just over half of your gross pay).
The average family spends around £540 per week in the UK. Assuming that you split the bills evenly with a partner, then that is £1080 per month or £12,960 per year.
So, if you lived very carefully, then you could put away £103,815.88 a year. So, without interest, you can probably become a millionaire in just under ten years.
This still involves living like someone on £26,000 a year for ten years, while earning £200,00. That would take some prudent spending and strong will-power. It also probably requires a long career to get to that salary level. Even the best graduate jobs start around £45-50K, and they are few and far between.
So, if you get to that salary level by say the age of forty-five you may become a “millionaire” by the age of fifty-five if you ignore past savings, and a little sooner if you have been saving a little since the age of twenty.
This is better than sixty-eight, but fifty-five is still a long time to wait, especially if you are in your thirties.
So, given that we want to become wealthier, and we don’t want to wait, then saying that no-one got rich working 9-5, for somebody else, is a pretty safe assumption. Selling your time by the hour will not make you wealthy.
Wealthy people buy time; they don’t sell it.
It is crucial to distinguish wealth from being financially prosperous. It may be that you want to spend more time with your family, with friends, or pursuing a favourite hobby, a number in the bank is not the end game.
Money allows you to pay for other’s production with your past production. Money is a tool. Money is not magic. It is not restricted to people with special characteristics or those who are born into it. Of course, some people may have a more comfortable ride to becoming rich.
Forget about others; this is not about them; this is about you.
Becoming rich is simple
In theory, becoming rich is simple. You just have to save more money than you earn.
Taking our target of becoming a millionaire, then you only have to generate £1,000,000 more than you spend.
Whatever goes in at the start is pretty irrelevant. If you spend too much, you won’t become rich.
If we ignore interest (and at the moment you may as well!), then to make £1M you need to save the following amount per year, to be a millionaire in:
25 years = £40,000 per year
10 years = £100,000 per year
5 years = £200,000 per year
2 years = £500,000 per year
1 year = £1,000,000 per year (obviously!)
As we have already seen, to do it in ten years you would probably need a salary of £200,000. Possibly, but not likely till later in life and still requires living frugally. Anything less than ten years and a salary is not going to cut it.
Who has a salary, working for someone else, of £500,000 per year?
Answer: Not many people.
What do the wealthy do?
If you look at the wealthiest people in America, salaries make up a tiny proportion of their income, only about 4% of their annual earnings. Interest and dividends are not much more than this. Equity and sale of capital assets are where the bulk of their income is generated.
You only have so many hours of work in your lifetime (the same time as everyone else!), but money and equity work twenty-four hours a day, seven days a week, three-hundred and sixty-five days a year. As they say, “Money never sleeps”.
The critical commonality for many successful people is that they start, build and sell businesses. They create wealth out of opportunities, in a way that can be scaled up.
If you want to start a coffee shop in your local town centre, and have the best coffee, with carefully selected beans, and the latest trend in cold brewing, then great, go for it. You will be able to make it work with the right plan and attitude. You will create yourself a particular lifestyle, and one that you may enjoy. However, how many coffees will you have to sell, (even at your inflated hipster prices) to make a million – a lot!
You will have a lifestyle business. One set up to provide a certain level of income, and that’s it. Alternatively, maybe it is to provide a way to enjoy a specific lifestyle, e.g. diving school in Greece, so you can be on a permanent holiday (not always how it works out). This is great if that is what you want, but you aren’t going to become wealthy from it.
What about Starbucks?!
Well, Starbucks is an excellent example of how to change a business from a lifestyle business into a scalable asset. Starbucks created a consistent process of serving slightly above average coffee, with a strong brand, that could be repeated around the globe.
One coffee shop owner may be limited on how much they can make, but if, like Starbucks in 2017, you have 27,339 coffee shops around the world, then selling coffee sounds like a good business proposition.
Having a scalable business is vital to becoming wealthy. Whether the founders do the scaling or not, is another question, as selling a company, is another good way to make money. Some serial entrepreneurs will only start a business with the goal of proving it in the marketplace, just to sell it on, for someone else to scale it up.
There is no pie
No, I am not talking about cherry pies or even a nice steak and ale pie, but the idea of a wealth pie of which people get a share.
You can become rich, without someone else becoming poorer. Wealth is created. Nations become wealthier. The pie grows.
A business owner does not have to exploit the workforce to become wealthy. Through their endeavours, they can take many people along with them. If you leverage labour to make more money, then you take on the risk to give your employees a monthly pay packet. This is not a selfish act.
Take a car washing business. You could buy your own van then go and wash cars. Again, there are only so many cars that you can clean in a day. So, either you leverage technology and come up with a way to wash cars far quicker than everyone else (but still with a limit on how many), or you harness labour and get yourself some more car washers.
At this point, you may no longer be washing cars yourself. This does not mean you are exploiting their labour for your ill-gotten gains. You are providing a legal framework for them to work. You are providing the insurance, the accounting, the marketing, the consistent process that builds a brand’s quality, and much more. They could all go out and start a business themselves, but they choose not to, as they don’t want to do all of this.
Don’t feel guilty about wanting to become wealthy and asking others to help you in this quest.
The right mindset
Many get rich quick schemes will talk about allowing yourselves to become rich as if it is as simple as clicking your fingers, but they do have a point, you need to want to do it, and you need to believe you can do it.
It is not an easy path. Becoming successful by starting your own business involves trading in your security of a monthly pay cheque, for the discomfort of uncertainty, but there is no reward without risk.
You must become comfortable with being uncomfortable. You must get used to uncertainty. You need to take calculated risks. Running your own business is not a walk in the park.
The temptation when starting a business (or even when further along in your journey) is to focus on saving money, both in your work life and in your home life. While it is essential to keep an eye on the bottom line, and not to overspend (remember you need to save more than you spend), it is better to concentrate on earning more, than on paying less. At the same time, don’t get carried away by how much money your business churns.
What could you be doing while you are wasting time looking for a coupon to save twenty pence off a packet of staples?
Your time is precious; use it to add value.
If you sit back and rest with a small amount in the bank, then you may become rich eventually, but you will be on the same path as those who chose a 9-5 working for someone else.
When you are broke (more so as a business), it can be motivating to go out and earn more. Always put your money to work. Invest in becoming more productive. Invest in your sales and marketing. Invest in your workforce. Whatever it is, invest.
Wealthy people choose to get paid by results. Getting paid for outcomes means putting in a lot of hard work, so, pick something about which you are passionate. You don’t want to get a couple of years in and find your enthusiasm wavering.
Find wealthy people and network with them. This is important for two reasons. Wealthy people have the money to buy what you are selling if you offer them value. Wealthy people want you to be wealthy too; then they can sell their products and services to you also.
So, is becoming a millionaire difficult?
Well, yes and no.
Yes, it will take much hard work. It will take a lot of commitment and sacrifice.
However, it is as easy as selling one million things with a profit of a pound, or 100,000 things for £10 profit, or just 10,000 things for £100 profit, or even 1,000 items for £1,000 profit.
Who can’t do that?
Commit to the idea of becoming wealthy.
Create a plan to get there. Ignore people who doubt you. You make your own destiny. Take charge of your own life. You can do it.
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