by Darrin Schenck
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by Darrin Schenck
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First things first, do you know the definition of a One Percenter? Top ten percent? Let’s start with the definition defined by annual income and not overall wealth.
Here is a chart of reference, courtesy of madisonadvisors.com
Top 1% – $515,371
Top 5% – $208,053
Top 10% – $145,135
Top 25% – $83,682
Top 50% – $41,740
Again, this is annual income and not accumulated wealth. But here is the problem with this view of money…it does not account for debt. I know plenty of people that are eyeball deep in debt despite making over $200K a year. It really doesn’t matter how much money you make if you spend every dime that comes in. If you live in a huge house with rooms you never bother going into, and you and your spouse both drive brand new cars that you lease every couple of years, you are quickly burning through that income. So is this really the right way to look at being a Top 5% or even a Top 1% earner? I don’t think so.
To back up my point above, here are some scary stats from debt.com:
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80% of Americans have consumer debt
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Avg American has a mortgage of $189,586
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Avg amount of debt NOT INCLUDING mortgage is $38,000
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Almost half of Americans live paycheck to paycheck (meaning job loss would be catastrophic for them)
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19% of Americans have $0 set aside for emergencies
And as a sidebar…the average cost to raise one child in America until age 18 is…$250,000!!! How about $14,000 per year as a good reason to wait to have kids until you have your finances under control?
Statistics show that 80% of Americans have debt to deal with, which means maybe 20% are actually debt free. That stat is likely aiming high. Realistically, if you are debt free except for your mortgage payment, you are probably in pretty good financial shape. So again, regardless of how much money you make per year, how you handle your finances is in my book the first real measure to look at.
So if you an your spouse have a combined income of $100,000 AND little to no debt, you are probably in the Top 5% right there, despite the income being below the figures in the first chart.
Alright, enough with the numbers, let’s talk strategies to achieve the (new) Rich definition. Again, these are my opinions, as I am not a financial advisor or anything like that. But, this is a list of things I do/have done to get myself into that new Rich category. Apply as needed…
1. STOP GIVING A CRAP WHAT OTHERS THINK – Yes, I put that in all caps for a reason, as it is, in my opinion, the the number 1 cause of financial issues. Buying stuff you don’t need, driving a new car, living in a home with rooms than you need, having a watch on your wrist that is a “showpiece” and anything else that is an outward show of money to impress others is a huge waste of your hard earned cash. Get over it…you are not in high school any more.
2. Live BELOW your means – This is crucial to getting your finances in order. Do a monthly budget and carve out money for savings FIRST, and then pay bills and party on what’s left over. The more debt you clear, the more “fun money” you’ll have in your budget. Most people do the opposite…
3. Write a budget and stick to it – This is simple personal discipline, and requires a few minutes a month to accomplish once you go through the exercise the first time. If you have never worried too much about sticking to a budget, spend some time really dialing it in the first time around, and this will become your new lifestyle in a big hurry. You are an adaptable human being, you can get used to it, trust me.
4. Pay cash for your car(s) – Once you are on the path to using a monthly budget, and getting some things paid off, add a “new” car fund in your budget. By new I mean new to you, not a brand new car. Way too expensive and a horrible investment any way you look at it. I paid $6,500 and $10,000 respectively for my last two vehicles. They were a 2002 Toyota 4Runner and a 2009 Toyota Highlander Hybrid; both nice rides, Toyota quality and lack of issues, and high resell value. I sold my 4Runner for the same price I bought it after four years of driving it. Now that is winning the game… NEVER EVER lease a car or buy new. The moment you drive that car off the lot, it has lost 30% of its value THAT DAY.
5. Recruit help if you need it – There are a bunch of books and videos and courses you can take on creating a budget, reducing debt, and saving for the future. I am a big fan of both Dave Ramsey and Ramit Sethi, despite them having very different approaches to the same end goal. I’d recommend you read both Total Money Makeover by Ramsey and I Will Teach You To Be Rich by Sethi, and then decide which is a better fit for you. Don’t combine them, that won’t work very well, it has to be one or the other in this case.
My point here is this:
IT’S YOUR LIFE, MAKE YOUR OWN RULES.
Stop following the herd and getting stuck in the same traps that everyone else (including me) fell for. In my opinion, the new definition of rich is debt free, ample time to do the things you want, and a flexible work schedule (WFA: Work From Anywhere!) Again, this is my opinion, define your own goals and chase them. My wife and I are real close to hitting the goals we set for ourselves. It is exciting to see, and this was accomplished in far less time than we originally thought it would take. We both work, and our household income does fall just short of the Top 10% as listed above, so factor that in. But we have earned that, it wasn’t luck or a hand out or anything like that. It was hard work and diligence, and with these two things, an awful lot can be accomplished.
I wish you luck in your endeavors.
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