We’ve all come across ‘get rich quick’ schemes which promise huge returns on our investment. But how about trying to get rich slowly?
7 Tips to Help You Get Rich Slowly
1. Keep track of your finances
You can’t begin to plan for your future without really knowing what is going on in your present.
The easiest way to get a handle on your finances is to keep track of your income and outgoings with a budget. I found that my own budget spreadsheet worked best for me. But there are other options available.
A budget will let you know what you really spend, and how much you have left for saving and investment. I discovered I was spending about four times more on food each month than I’d thought…
2. Pay off your debts
Keep on top of your credit card and loan payments. If those run away with you, then you can get yourself into a real pickle. If you do get yourself into trouble, then seek advice to help work out your debts.
3. Set up a standing order to save money each month
Just like backing up your work, the hardest part of saving is remembering to do it. So set up an automatic standing order to save some amount each month. It doesn’t really matter how much you save, but just do it.
It doesn’t really matter how much you save, but just do it.
Once you’ve got into the habit of saving something, try to build up the amount you do save. But be realistic. There’s no point saying you’re going to put aside 60% of your salary, when you know 50% goes on rent. See point 1, above.
To encourage you to save regularly, you might want to look into getting a regular savings account, which rewards regular deposits with a higher rate of interest.
4. Set up an Emergency Fund
Once you’ve paid off your debts and started saving regularly your first port of call should be an emergency fund. This isn’t savings for the long term, this is money you put aside for ‘just in case’.
The exact amount of money is really up to you, but something like 3-6 months’ worth of expenses (see point 1) is a good amount to aim for. Remember: you don’t have to get to this amount over night – let the power of your regular saving get you there over time.
This emergency fund money is for things that you don’t see coming. You lose your job and need some money to pay the rent. Your parents are ill and you need to get home right away. Your laptop dies and you have to buy a new one.
Don’t worry about whether this money is ‘working’ for you and earning interest. The important thing is that it there when you need it.
5. Save some cash for your short/medium term plans
The previous points are really just to allow you enough financial breathing space to get to the real goal of putting aside some money for the future. At this point you need to have a think about what your plans are for the next few years.
Generally speaking, the easier it is to access your money, the worse the rate of interest offered. Think about your current expenses (see point 1, above) and what your plans for the future are. You probably want to have some money as readily available cash, and perhaps some in fixed-term savings accounts.
If you can, consider tax-free savings. This is particularly important if you are a higher rate tax payer, where you could be losing almost half of any interest earned on your money.
6. Long term investment: stocks and shares
If you’re really serious about long term investments, then you’re going to have to consider investing in stocks and shares.
Although more vulnerable to ups and downs in the economy and the warning of ‘you may lose some or all of your investment’, in the long run investing in stocks and shares can offer dramatically improved returns over cash investments.
As a rule of thumb, you should be thinking of investing over at least a five to ten year period. Any shorter than that and you run a greater risk of falling foul of the market and losing money.
How you invest in stocks and shares really depends on your willingness to take on risk. I like the method encouraged by the ‘bogleheads‘.
The boglehead strategy works on the basis that in general, over all the stock market will increase in value, so if your investment portfolio to as closely as possible reflect the whole market, you can help minimise risk over the long term.
7. Check out these other ‘get rich slowly’ resources
GetRichSlowly.org – a website dedicated to getting rich slowly. Advice on saving, investment, retirement, education, and more.
reddit.com/r/frugal – a sub-reddit for living within your means.
reddit.com/r/personalfinance – generally USA-centric. A good source of general financial pointers.
Money Saving Expert – a website dedicted to money saving tips and advice. Focussed on UK savers.