How to Get Rich, Working for Someone Else

I’ve got some bad news. Most of you won’t get rich while you’re young. And, even worse, many of you will submit to financial slavery for the better part of your lives.

Let me define wealthy as having a net worth (assets minus debts) of at least $1 million. And a quarter of it ($250,000) in non-retirement investments — meaning you can spend it however you want with zero penalty or restriction.  Meaning it’s liquid.  

And I define young as by the time you are 45 years old.  Sure, $1 million isn’t what it used to be, especially if you live in a large coastal city, but for many of us, having that type of net worth by the age of 45 would be a terrific accomplishment.

The Federal Reserve reported the average net worth for families in the US between the ages of 35 and 44 in 2016 was $288,700. And, the average net worth for families under the age of 35 was $76,200 in 2016. 

Source: Indianapolis Business Journal June 28, 2019
Data On Display Feature compiled and designed by Jill Doyle

And you may wonder, what is the point of this wealth?  Well, It’s freedom.  It’s freedom from, well, everything you don’t like to do, like a job that makes you miserable. It’s the freedom to work not for the money, but for the work itself, for the people you interact with, for the purpose it brings into your life.  

Wealth is discretionary time; money is simply the means to obtain wealth.

Alan Weiss, Million Dollar Consulting (5th Edition)

If you can save a pile of cash, you are also free from unexpected financial surprises in life, like a job loss, or medical emergency. 

And most importantly, having this kind of cash empowers you to make investments in things like real estate, stocks, or even your own business – the path to true wealth.  

Having $750,000 in retirement savings (401k, IRA etc.) by age 45 pretty much assures you a comfortable life in retirement.  By the time you’re 67, when you can maximize your social security benefits, the powerful tsunami of dividends, capital gains and compound interest, combined with even modest stock market performance, could double or even triple this balance in those 20+ years. 

And this type of wealth is attainable to the vast majority of us who make even a modest living – but piss it away on stuff we don’t need or enjoy.  

The opposite of this freedom is what most of us submit to, and that is financial slavery, which is living beyond our means, owing money, and paying interest. Like rats in a rat race, or hamsters on a wheel.

Why You Won’t Get Rich While You’re Young

Because most of us won’t participate in any of the following:

  1. Start or build a successful business
  2. Inherit a successful business
  3. Inherit a fortune
  4. Win the lottery
  5. Or marry someone rich

If you think about it, those are really the primary pathways to wealth.     

Most of us will work for someone else to earn a paycheck. According to the 2016 Annual Survey of Entrepreneurs by the U.S. Census, there were about 5.6 million businesses employing about 151 million Americans (2016 Bureau of Labor Statistics).

The vast majority of us (for a variety of reasons) work for other people, which is perfectly fine, working for other people has its benefits.  

It’s less stressful and it’s less risky. You don’t have to deal with the #1 worry for most business owners, how to stay in business.  You get to clock in, work hard, clock out, and take home a paycheck.

But to get rich while you’re young (and working for someone else) means you’ll need to earn an equity stake in that business (stock, or stock options) and have the value of your shares rise in value.

The ONLY other way to get rich while you’re young (and working for someone else) is to live below your means, and regularly save a large chunk of your take home pay. Which is extremely hard for the majority of us to do, especially me.

Why? Because it’s so DAMN BORING, that’s why.  We want to live life while we’re young, eat great food, experience travel, wear cool clothes, live in a nice place, have the latest iPhone, and drive a sweet ride. 

We also want our friends, family, and even strangers to know we are succeeding in life. Social peer pressure is the primary contributor to financial slavery.  I’m won’t cite boring research to back this up, it’s just human nature.  We are competitive creatures and have a desire to keep up with the lifestyles of those closest to us, and even strangers like our neighbors, even if it requires going into debt.  

It’s kind of like driving on the interstate and you notice another car about to pass you, your instinct is to speed up, to not be overtaken.  Same goes for when you pass someone, if you pay attention, you’ll notice most of the time people speed up when you try to pass them, even if they don’t realize it. It’s just in our nature.     

The key to overcoming the social and psychological contributors to financial slavery is to start feeling pain when you live beyond your means.    

Not just the pain of stress – the stress of not being able to pay your debts — stress alone is not enough.  You need to realize when you live beyond your means, you are limiting your own freedom. Understand that when you go into debt and pay interest, you are choosing to become a financial slave.    

Accumulating debt and paying interest are the chains that bind you to jobs you don’t like. They’re a protective moat keeping you from wealth, and the constraints keeping you from pursuing a healthier and happier lifestyle.

When you work for someone else — your take home pay IS YOUR FREEDOM.  Meaning your paycheck is your most significant tool for building wealth.  And when you commit to financing things and paying interest you are infringing on your freedom to create wealth. 

Let’s look at something as simple as a new car, because I have struggled with this instrument of financial slavery all my life.  

I love cars.  Can you guess how much I have spent on car payments over the past 25 years? 

Over $200,000.

That’s right.  Since I’ve been on this earth, I have invested $200k in car related stupidity. And I don’t even drive fancy cars. If you’ve been driving for 20+ years, it’s likely you’ve spent well into the six figures on car payments.   

Would you like to know what I have to show for this investment of $200,000?

About $10,000.  

That’s what my current car, a 2010 Infiniti G37X Sedan, is worth. So, I have lost around $190,000 on my investment in cars.  

If you want to create wealth (while you’re young and working for someone else) you need to start thinking about cars very differently.  They are among the worst investments and biggest contributors to our financial slavery. 

Because when you buy a car and you don’t have the money to do so, you are financing a car. Leasing is even worse, because you never end up owning anything — it’s perpetual renting.       

Financing (or leasing) a car means you are choosing to allocate a large chunk of your paycheck to something that depreciates in value.  Maybe you won’t lose money on a classic Ferrari or a ’60’s muscle car, but your new car is guaranteed to lose money, and in addition to losing money, you’ll pay interest too. Feeling any pain yet?   

Start thinking about transportation as overhead.  Successful businesses try to maximize the amount of cash they have in their business by keeping overhead low. A smart business owner might seek a better solution like buying a slightly used car, one that gets good gas mileage, and doesn’t cost an arm and a leg to maintain.    

The more of your take home pay tied up into monthly finance payments — especially on stuff that depreciates (like cars) — the less you can save and invest.

The more and more stuff you finance means the less and less freedom you have.  And it’s not just your freedom to create wealth, it’s the freedom from having to do things you don’t like to do.    

Big Hat, No Cattle  

Are you trapped in your life and career?  Ensconced in a cocoon of comfort and measuring up with your neighbors and friends in all the major consumer categories?  You have the big house in the trendy suburb, a new hybrid sedan and SUV, designer clothes, hip furniture, private schools for the kids, plenty of vacations, and you go out to dinner a few times a week at the popular new organic restaurant.  

You can buy (finance) just about anything you need because you have a great credit score.  But, by the time you get your paycheck, it’s pretty much spent.  There are several credit cards, private school tuition, and car payments due.  Also, the mortgage, utilities, country club memberships, hot yoga, cable TV, Netflix, Apple Music and many others. Leaving zero room to make a deposit into your freedom account – or create wealth.  

In Texas they call this “Big Hat, No Cattle.” 

Your entire ecosystem of overhead is dependent on a single source of income, your paycheck from one employer.  Maybe two paychecks if you’re married. That begs another question, are you and your spouse both working, and paying for someone to watch your children, just so you can maintain this lifestyle?

Does your job make you happy?  Or is it more about the pursuit of money?  Is your favorite night Thursday, because the next day is Friday?  And your least favorite day Sunday, because the next day is Monday?

Do you dread waking up on another cold, dark, snowy, winter Monday, to join the rest of the zombies on a rush hour commute to a job you don’t enjoy, all to support a lifestyle that really doesn’t make you happy?

Does the career you chose in college, the path that paid the most money, create the kind of stress triggering you to smoke, drink excessively, or abuse drugs?  Do the politics of this job lead you to behave in unethical ways? Are the 60-hour work weeks steering you to eat poorly, gain weight, and avoid exercise?  

These constraints on our freedom are the most common, and subtle, but just as destructive because they turn our purpose of life into a pursuit of money, for stuff we buy, trying to impress our friends.  And we end up fat, out of shape, and unhappy.  With garages and basements full of crap.

Think back to when you were a kid and worked summer jobs.  This is possibly the last time you were truly free.  Before you took on the college loan, before you were introduced to credit cards, and before you were exposed to the powerful social and marketing forces that drive our consumption.  

This was the last time many of us truly lived below our means because our parents paid for our overhead.  It should have been an incredible opportunity to save money because every cent earned wasn’t earmarked for some type of bill. 

Many first-generation wealthy people today, meaning they didn’t inherit any money, built the foundation of this wealth on money they saved from summer jobs as kids.  

Not me, I didn’t save a penny.  

The Secret To Wealth

I had a terrific role model when I was growing up in my Aunt Ven and Uncle Bob.  They lived in the small town of Huntington, Indiana.  They never had children, and both had successful careers.  

In the 1970’s my Aunt became a Vice President for her local bank.  No small feat in those days.  She was an incredibly smart and driven person, and I believe a pioneer for women in the work place.  She broke free from the rat race at the age of 46 and fully retired from the bank.  Age 46, can you imagine?  As I write this today, I am 45 years old and nowhere close to retiring.  I’m betting this goes for the vast majority of us. 

My Uncle Bob started out as a tailor, and then bought a title insurance company that my father runs to this day. He worked until his early 60’s but not because he needed the money, he worked because he enjoyed his job and the daily interaction with people.  

Oddly, as a banker, my aunt never let my uncle borrow money for his business.  Not for anything.  She would insist they use cash to buy things.  Now isn’t that strange?  A person who made money for her bank by making loans to businesses wouldn’t allow her own husband to borrow money.  

It turns out that my Aunt Ven was very opposed to borrowing money, for anything.  

And that’s how they lived their lives.  In a sea of people borrowing money to build houses and buy cars.  They always paid cash.  And they always saved a portion of their income.  

Because their paychecks were not tied up in monthly payments for home, cars and credit cards, they were able to save a lot of money and take advantage of investment opportunities throughout their lives. 

They mostly invested in startup banks, stocks and real estate.  Because of these investments they were able to retire early and live off of dividends and rental income. 

They never made huge paychecks.  Their creation of wealth stemmed primarily from appreciation of investments.  Investments made early in life because they had the cash to do it.  

When I was young, I always looked forward to visiting their lake cottage in northern Indiana. I will never forget when Aunt Vennie discovered her neighbors were selling the vacant lot in between their two cottages.  She wrote a check on the spot for $60,000. 

Now who can come up with $60,000 in one afternoon without having to borrow it?  People who live below their means, that’s who. By the way, that property today is worth 20x the amount she paid.  

Aunt Ven and Uncle Bob gave me valuable advice while I was young.  But I never followed it. 

My parents were quite the opposite.  

Although I couldn’t have asked for a better childhood, or nicer parents who did their very best, they were terrible with their money. I don’t blame them one bit, like so many of us they wanted to have fun while they were young. And they had a bunch of wealthy friends: Doctors, Lawyers, business owners, so they were compelled to keep up appearances.

My parents financed just about everything.  Cars, houses, vacations, home remodeling, carpet, a pool, a deck, household appliances, cabinets, bikes, clothes, TV’s, furniture, exercise equipment, landscaping, garden tools.  

At first, my mother stayed home to raise me and my sister, and Dad’s income was our only source of revenue.  Eventually, as we grew older, the need for money was so persistent Mom began selling real estate.   

Still, all of their take home pay was tied up into payments of some sort.  And as kids, my sister and I benefited socially.  I remember how proud I was when my Dad brought home a new 1992 convertible Corvette.  It was White, with a navy-blue cloth top with matching leather interior.  It was beautiful, and my friends were in awe of it. The new Corvette was a symbol that we were doing alright.       

But living paycheck to paycheck is stressful, and I could feel the stress on my parents as a kid.  One day we’d be on top of the world with a new car.  The next day we’d be stressing out over lunch money.  

I believe this stress played a big role in their eventual divorce.  I’m certain it’s why my father had to file for bankruptcy soon after. 

I don’t blame them, because I acted the same way when I earned my own money.  I had every opportunity to learn from good examples like Aunt Ven and Uncle Bob – who by the way paid for my college, and my sister’s college.  And have funded my niece and nephew’s college funds.      

I just never associated enough pain with living beyond my means, I never considered, until now, what kind of freedom I was sacrificing. If I knew what I know now, and started when I was 25, I could have easily attained the wealth and freedom I described earlier by age 45.   

Consider this, if you work for someone else, eventually, you will become too old in the eyes of any employer.  

Recently, on a local personal finance radio show, the hosts pondered the following scenario:  A 58-year-old woman worked her entire career for a local family owned company.  She accumulated over $600K in retirement savings.  She owned her house, and she had some decent cash savings, around $20K.

The owners of the company – who valued her contribution and employment – were now old and wanted to retire from the business, leaving their 30 something year old daughter to take over.  

Naturally, the daughter wanted to change things.  Right or wrong, changes were coming, youth was moving in, and it worried the dickens out of this poor woman and other veteran employees. 

While this woman had done a good job of saving money, and living below her means, she still would benefit greatly by keeping this job, and her nice salary, until her mid-60’s.

The radio hosts pondered several scenarios for her, she could stay and run the risk of getting laid off by the younger generation.  She could retire, and look for other employment, or she could go back to school and seek other skills. 

These are the type of frightening scenarios you need to be prepared for as you age. Because when you devote your life to working for someone else, and you don’t live below your means and save a pile of money, someday your skills and contributions won’t be valued by a new generation of employers.        

The tools of financial slavery are debt and interest, brought on my living beyond your means, and if you think about how these forces restrict your freedom and dictate your life, it shouldn’t be hard to start feeling their true pain. So, get busy saving and investing, or even better, get busy creating your own business.     

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