Many folks look to build wealth by trying to “beat the market” substantially or working endless hours. These methods may help, but they may actually hurt. Most folks end up taking too much risk with investments while pursuing high returns, which usually ends up in subpar returns. Over-exertion at work often leads to stress, which leads to absenteeism or costly medical assistance. This can lower your wealth, but, more importantly, your quality of life.
Jeff Yeager, author of the The Ultimate Cheapskate’s Road Map to True Riches: A Practical (and Fun) Guide to Enjoying Life More by Spending Less, laid out some of his ideas to build wealth. He discussed some of the ideas in a Yahoo article, but I have summarized a few below.
1. Live a Smaller Lifestyle: Yeager talks about staying in your starter home, rather than buying a much bigger place. The additional costs to heat, furnish, maintain, and insure the home eats away at your wealth. Yeager tires of financial gurus telling people to make their own coffee, rather than buy it, since the amount saved is minute compared to the savings from a smaller home.
2. Need versus wants: Yeager recommends really looking at every purchase to see if you really need it. Buyers remorse is high for most purchases so wait a week before buying something. During this week, ask yourself if you really need it. Many times you will avoid wasting money by doing this simple trick.
3. Drive Less: When gas was $4 a gallon, most people drove less, and most claimed it didn’t really affect their lives. So why not drive less even with gas under $3 per gallon.
4. Be Green: A life long environmentalist, Yeager ridicules folks who pay extra for buying “green” items. If you really want to be green, then reducing consumption is the best way to achieve this. Spending more for green products is silly in his opinion, especially when a truly green product is cheaper than non-green. For instance, vinegar and baking powder is substantially cheaper (and better for the environment) than green and non-green cleaning supplies.
5. Eat healthy: Eating healthy is actually cheaper than the typical American diet. Beans, whole grains, and fruits/vegetables are cheaper than meats, processed foods, and sugars, and you will be healthier for eating this diet.
I think the key is to live a smaller lifestyle than your income would allow. I had a boss in the Coast Guard who lived one pay grade below his rank When he was a Lieutenant, he lived as a Lieutenant Junior Grade. When he was a Captain, he lived on the Commander’s salary. This ensured he lived a smaller lifestyle and saved a ton of money.
Competing with the Jones is futile and only makes everyone poor. Plus, giving your kids every toy they want teaches them nothing and makes them unappreciative of gifts. I always like the Buddhist maxim that “the things you own eventually end up owning you.”