How to Get Wealthy (Over Time)

Note: This post was originally written here.

Life is simple. Why do we make it so hard?

This is what Jon Jandai, a farmer from northeastern Thailand, asked the audience while delivering a TED speech in 2011.

He echoed what Confucius had said 2,500 years earlier, “Life is really simple, but we insist on making it complicated.”

While I recommend you watch Jon’s complete speech, the crux of what he says is that we don’t have to do what society tells us, we can have the life we want, and our choices determine if we get such a life.

Consider wealth creation. Spending less than you earn, i.e., saving money and investing it well over a long period of time is all you need to meet all your financial goals. Simple, right? But the question again is, like Jon asked, why do we make it so hard?

Look at this chart that talks about the three simple steps to get wealthy over time…

Could this get any simpler?

One of the big factors that helped me quit my job in 2011 was that I had practiced diligently what you see in the chart above. I was 33 then, with no experience outside of a job, and with a second child on the way. But I was debt free after having repaid my housing loan from my investments, and had some savings to take care of the house till I ‘settled.’

So, of course, I wasn’t wealthy then (or even now), but it was quitting the rat race and looking around that made me realize why I had the ‘stomach’ to do it (great luck helped me later) even as most people around me, even with higher incomes, were stuck under the addiction of their monthly paycheques.

One of the insights I received then – call it my Aha! moment – was that most of our middle-class lives are highlighted by tremendous amounts of wastefulness. But since we don’t pause to think about it, because we often don’t learn to see the harsh truth, we are not able to start on the path to freedom from our financial worries.

Of course, money isn’t everything in life. But it sure does help to consistently work towards reducing such wastefulness, to spend less than you earn and invest the difference well. Over time, compounding will do the rest for you.

My 7-year-old understands this, although, given his age, we have to serve him occasional reminders through our actions. But he knows how money is earned, and what happens when you spend more than you earn (it disappears like magic!).

Also, while he is yet to start understanding and appreciating the importance of compounding – which my 14-year old does – he has an idea about what happens if you save money and invest it well. “It works hard as your parents do,” he tells his friends.

Now, one thing we have learned over the years and now also teaching our kids about money is that the path to saving it is not to be a penny pincher. You need to enjoy the present as much as you must save for the future (my son is already using this tactic to push me for another trip to Disneyland!).

You also need to find ways to grow your income (legally, please!), and that’s a very important step in the wealth creation journey. But the key idea is that you avoid spending big money just to keep up with what (you think) the society demands of you.

“What you own, owns you” is a dictum I have believed for quite some time now. And that has helped me make choices that have subsequently helped me create a life I always wanted to live.

Living a minimalist, no frills, life is a powerful idea, my dear friend. Try going on a high-altitude trip where you cannot carry a heavy baggage with a lot of stuff, and you will realize how little we need to survive in the world (even with its headwinds).

But now the question you may have is – If it’s really about minimalist living, what’s the point of getting wealthy anyway?

I have three reasons.

One, if you have money, you don’t have to worry about it.

This isn’t something that is guaranteed. I’ve seen a lot of rich people who are always worried about their finances. However, the real idea is that if you save and invest diligently, and you start doing this early in life, you should reach the point where money worries are relatively rare.

Two, money can give you the freedom to pursue your what you love doing.

When you picture your financial independence, what do you see? Enjoying your life to the fullest given that you’ve ensured that your family’s needs have been taken care of? Seeing around the world? Working on a cause you are passionate about?

Saving and investing can help you achieve such freedom from your financial worries – if you aren’t already there, that is – so that you can attain complete peace of mind and pursue your passions.

Three, money can buy you time with friends and family.

Research has found that regularly being with your friends and family can provide a huge boost to your happiness. And money can help you in this regard. If you don’t need to work or you only work part time, it helps you spend more time with your family and friends, go on regular vacations with them, and spend other quality time in their company.

You see, you don’t usually need millions of rupees in your bank account to spend time with friends and family or pursue your passions. But in order to get somewhere there, you must skip out on that flashy mobile and glitzy car you were looking to own, save that money, invest it well, and repeat this over a long period of time.

The quicker you grasp this simple idea about saving versus spending, the quicker you will be able to start living like a free bird…even if you don’t have many millions in your bank.

And at the end of it, even if your bank account may seem inadequate, your life will be far, far richer.

Charlie Munger once described the secret of success as “take a simple idea and take it seriously.”

Spending way less than you earn and investing that difference well over a long period of time is that simple idea.

If you wish to get wealthy, you need to take it seriously.

Now, if your question is – But how much money is enough? – I suggest aim for 30-40 times your annual household spending saved up and working for you. That is enough to live off the rest of your life well.

Today is World Savings Day, and I wish you the freedom saving and investing your money well can get you. Not just freedom from worry, but also freedom from most forms of nonsense you may have to bear for the lack of money.

Also Read: Let Me Convince You To Save Money (one of the best posts on saving money I’ve read)