Last Updated on
Do you want to be wealthy when you get older? Would you want to have so much money that you’d have to put forth some effort to spend what you’re making? Of course, you would, so would I!
It would be great to have not only enough money for ourselves but a little extra to go around. We could be giving to others who are in need, extending a vacation a little longer or just providing an even better life for our family.
The real question is will you ever have the money to do any of that? In my opinion, the answer depends on a few factors. I believe that just about anyone can learn to manage their money in such a way that they have enough for themselves and a little left for others.
I also believe that there are signs that are common amongst those who have achieved that level of wealth. Today I’m going to be going over five of those signs. Let’s get started.
The first sign that you are going to be rich someday is that you know yourself well and you don’t get in your own way.
Within this sign, there are several traits that you may want to consider developing if you haven’t already to get the most out of it.
One of those traits is automating your finances. Automating your finances can help make sure that you do not become your own worst enemy. Impulse buys are a thing after all and we all have weak moments. There’s not a whole heck of a lot that can be done to get around that, but it can be limited.
We can ensure those moments don’t cripple us for years by having the key portions of our financial picture taken care of automatically.
A second trait that is common to this sign is a high level of self-awareness. It’s important to learn how you’ll react to certain situations. Without that knowledge, you can’t set up measures to ensure you don’t fail financially. Ask yourself: how will you react if you’re investments fall by 50%? Will you be comfortable continuing to invest? Will you sell those investments and buy new ones? Will you invest more to take advantage of the price drop?
Knowing the answers to these questions is crucial to long-term financial success.
A third trait that is common to this sign is putting a high value on taking action. This one is pretty simple, no success has ever been achieved without action. Therefore, knowing how to get yourself to take the necessary actions to achieve your goals is vitally important.
A fourth trait common to this sign is that you know how to form good habits. If you want to learn more about how to do this I highly recommend Gretchen Rubin’s book “Better Than Before.” It goes over how to form good habits (and get rid of bad ones) for various types of people. I just finished it reading it earlier this year, it’s a fantastic book.
The second sign that you are going to be rich someday is that you value ongoing education.
Whether in the form of books, classes, or just watching videos here on YouTube it’s important to never stop learning.
Being open to these opportunities can lead you to discover new ideas that you never would’ve considered on your own.
And you never know when one of those ideas will change your life for the better.
The third sign that you are going to be rich someday is that you have a high savings rate.
You can achieve this in so many ways that it’d be impossible to list them all but here are a few examples:
You implement a zero-sum or values-based budget to limit financial waste. You use IRA/401K for tax savings. You hack major line items in your budget such as housing and transportation for large savings.
Follow the Jay Leno savings method, and diversify your revenue streams with a side hustle and save the additional income.
Whichever route(s) you choose to go with the key is to get that savings rate as high as you reasonably can without being unsustainable.
The fourth sign that you are going to be rich someday is that your money works for you instead of the other way around.
This is typically achieved through learning the difference between assets and liabilities. Then buy as many assets (and as few liabilities) as possible. For the record, I’m defining an asset as anything that puts money into your pocket and a liability as anything that takes money out of your pocket. These definitions are based on the definitions laid out in Robert Kiyosaki’s book, “Rich Dad Poor Dad.”
Learning how to develop passive income streams through investments or profitable businesses are some common examples. While they do have expenses associated with them their net effect puts money in your pocket. However, some liabilities are almost unavoidable in this day and age.
For those liabilities, you should try to find a way to turn them into assets. For example, shelter is something we all need. But in most cases, houses are liabilities because they take money out of your pocket every month through the mortgage, utilities, taxes, and insurance costs.
To turn this into an asset you have a few options. First, you can rent out some of your unused space to make up for the costs of housing. Another thing that you can do is put your house up on places like Airbnb to attract additional, albeit intermittent, income.
Say that John’s house cost him $1,000 a month. He rented out his upper floor for $800 a month and allowed people to stay in his lower level on the weekends through Airbnb. If this brought him an additional $400 a month is total income would be $1,200 a month. At that point, he would be netting $200 a month in income from his house and would have successfully turned it from a liability into an asset.
You may be able to achieve similar results with your car by signing up for services like Uber or Lyft and making money as a driver.
The fifth sign that you are going to be rich someday is that you have a low burn rate.
Your burn rate (at least in the context of this article) refers to the amount of money that you won’t avoid spending.
This mainly refers to your non-discretionary spending. Most of us are going to need to spend some money to have a place to live.
However, the choice of what categories those living expenses are going to is ours to make. We could pay rent, have a mortgage, or just pay maintenance and property taxes on a home we own outright. We could also rent hack in one form or another.
All of these options are going to have different burn rates associated with them. John and Jane take home $5,000 a month. They rent an apartment in LA for $3,000 a month. And their other non-discretionary expenses amount to $1,500 a month. Therefore, they have a total personal burn rate of $4,500 a month. And there’s $500 a month left to put towards savings and other discretionary expenses. If John and Jane save the entire $500 each month then their total expenses (and burn rate) would be $4,500 a month. This is highly unusual and likely unsustainable, but we’ll do it like this just to keep the example simple.
This would mean that John and Jane need a nest egg of $1,350,000 to be considered financially independent according to the 4% rule. If they averaged returns of 8% per year on their investments they would reach that goal in about 38 years. However, renting isn’t John and Jane’s only choice when it comes to housing costs. What if they bought a house and paid a mortgage instead?
Assuming they had a $350,000 30-year mortgage at 4% interest they’re payments would be $1,670 a month. However, as homeowners, that wouldn’t be their only expense. They’d also have to pay for property taxes, homeowners insurance, utilities, and maintenance. Let’s say these costs amount to an additional $830. Therefore, the average total cost of the house would be approximately $2,500.
John and Jane’s total monthly expenses would be $4,000 after adding in their other non-discretionary expenses. Their goal for achieving financial independence under this lifestyle is $1,200,000.
This time, they have $1,000 a month to save. Assuming an average 8% return they’ll be financially independent in just over 28 years. That’s about 10 years sooner than before! However, John and Jane could still do more to improve their financial situation. If they were so willing they could rent out their house on places like Airbnb one or two weekends a month for some extra cash.
They could use that cash to pay off their mortgage and lower their burn rate or invest. If John and Jane net $100 a night from their Airbnb house hacking strategy for two weekends a month they will net $400 a month. If instead of investing, they put the full $1,400 ($1,000 leftover after expenses + rental income) toward their mortgage they would have a paid-for home in 12 years.
There’s a couple of things that happen in this scenario. First, their burn rate drops because they no longer have a mortgage. Their new burn rate is $2,330 a month. This means they need $699,000 to be considered financially independent according to the 4% rule. Additionally, they’ll be capable of investing $3,070 a month ($1,400 a month plus the $1,670 that used to go toward the mortgage).
Under this scenario, John and Jane would be financially independent 12 years after their mortgage is gone. If John and Jane add the $400 rental income to their other investments they will become financially independent in 25 years. They would have about $1.28 million in their nest egg and a mortgage of about $91,000. So those are five signs that suggest you will be rich. While there are many other signs that could’ve made this list I felt these were the most common that I see.