Get Rich(er)

It is true that no one can serve two masters, and slavish devotion to unrighteous mammon is indeed a road to misery.  Ambition to produce and “be rich” is not necessarily a bad thing, though.  And if you’re reading this, you’re likely among the richest 1-2% of people who have ever lived.  Historically speaking, you’re not just rich.  You’re super-rich.

This means a couple of things.  First, it means that foregoing generations have left us with the capital, technology, and institutions we need to produce staggering amounts of wealth (which isn’t just “stuff;” wealth is whatever people value).  They have done this by establishing legal systems conducive to trade, by establishing an ethic of inquiry, and by refraining from consumption so as to leave us with plenty of resources that we can use to produce current and future output.  How, then, in this environment, should one grow wealthy?  And what are the social implications?  Here, I will relay some of the best advice I have gotten and discuss some of the social implicaitons of “getting rich.”  First, here’s how to do it:

1.  Stop renting and buy a house. Homeowners build equity while renters line their landlords’ pockets.  This require a few important caveats.  First, don’t buy a house you can’t afford by agreeing to terms you can’t meet embedded in a mortgage you don’t understand.  Second, it is better to rent than to buy if you are only going to be somewhere for a very short period of time.  We bought our first house about a year ago, and we bought conservatively: we bought in a nice, semi-urban neighborhood based on the assumption that we would have to pay for the house on a single income.  We’re happy, we’re building equity, and we aren’t over-extended (yet–we have a six-week-old!!).

2.  Step away from the latte. The Automatic Millionaire author David Bach refers to what he calls “the latte factor,” which consists of the money we spend on small, incidental purchases: a $3 latte here, a $15 lunch there.  It all adds up.  Of course, there is something to be said for having your morning coffee, and for some of us, it is more efficient to get our fix from Starbucks.  A first step might be to size down–Starbucks does sell a “short,” though it isn’t on the menu–or to go with a regular coffee that costs $2 rather than a $4-5 specialty drink.

3.  If you’re being paid $50,000, do $55,000 worth of work. One of the best ways to ensure job security is not to do the bare minimum necessary to get by, but to do enough that you are competitive for another job.  In academia, our brass ring is tenure, which gives us wide-ranging freedom to explore the world of ideas.  Last summer, I heard it put this way: “don’t worry about being competitive for tenure.  Worry about staying marketable.”  If you’re marketable–and you may be perfectly content wherever you are–then you shouldn’t have to worry too much about job security.

4.  Save. If you aren’t contributing to your 401k or your 403b and you don’t have an excellent reason not to (we didn’t during my first year at Rhodes because we were saving cash to buy a house), you’re throwing money away.  A Roth IRA is a fantastic deal if you’re young, and a 401k can reduce your tax liability considerably while giving you room to grow your capital in the future.

5.  Bank the raises. What do you do with those little boosts to your income?  Do they go straight down the drain on a bunch of stuff you don’t need?  Or do you put them in the bank?  We have a system that has worked reasonably well in our house.  Whenever, we get unexpected shocks to our income, we split it four ways.  The bank gets 25%, the kids get 25%, my wife gets 25%, and I get 25%.  This has proven to be a somewhat reasonable and easy way to splurge every so often while making sure that we are wise stewards of what has been entrusted to us.

6.  Be a cheapskate. This is something we have some trouble with.  When your income goes up, it’s fine to splurge a little.  My wife and I both have iPods, and we have a nice TV.  However, we had one car for our first four years of marriage, and we bought a deeply-used second car last summer from a Rhodes graduate who was advertising it on Craigslist.  We’ve never had cable, we just switched from cable internet to AT&T (slightly slower, much cheaper), and we try to take advantage of cheap entertainment (our church library, for example, has a ton of stuff).

7.  Go with equities if you’re young. The younger you are, the better it is to invest in stocks because you have plenty of time to take higher volatility in exchange for higher returns.  As you get older, you will want to make your portfolio more conservative, but now is the time to take on risk.  Even in the current crisis, there is reason for optimism because it’s a great time to buy.  After you’ve salted away two or three months’ income in order to deal with unanticipated emergencies–like the new kitchen floor we had to get last month–you should begin investing in equity-heavy mutual funds.  Many companies offer funds that rebalance toward greater conservatism over time, substituting bonds and safer securities as you approach retirement.

8.  Get educated. The market is screaming “stay in school!”  Wages for low-skilled occupations have stayed flat while wages for high-skill, high-tech occupations have risen dramatically.  If you’re serious about it, college is a great investment.  Strange as it may sound, the increasing cost of college is another reason to be optimistic.  Higher costs for higher education suggest increasing productivity in other sectors as well as general expectations that there are great opportunities in the future for the educated.

9.  Be generous. Finally, it is important to remember all the cliches about wealth.  All that glitters is not gold.  George Bailey was the richest man in Bedford Falls.  It doesn’t profit a man to gain the world and yet lose his soul.  Ebenezer Scrooge, for all his wealth (which produced higher incomes for many people, by the way), appears to have had a miserable and wretched life.  Money cannot buy happiness or love, but it can buy a lot of things that contribute to happiness–such as the ability to help people who truly need it.

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