Hi! Seiiti Arata. Did you know that in just one month, people spend about a billion on the lottery? And that it takes a whole semester to spend that same amount of money on books?
Think about it: six times more money is spent on the lottery than on books.
Before rushing to judge others, think about your own financial situation. Having clarity about your finances is essential to knowing how to get rich.
Most of us have no idea how much money we specifically spent last year, whether it was on the lottery, on books, or on any other category. The reason for this is that most people don’t have absolute control over their finances, they don’t set themselves a personal budget. Financial control and clarity are the most key building blocks for anyone who wants to learn how to get rich.
Almost everyone says they want to know how to save money, that they want to be financially independent, that they want to get rich. It’s rare, though, that people put effort into making these dreams come true. Nobody ever wants to take the first step, which is to take serious control of their finances. Do you know why? Because they’re scared of the truth.
If you want to know how to get rich, you need to stop running from the truth.
To get rich, you basically need to spend less than you earn and invest the difference wisely. You probably know how much you make, but you might not be as clear about how much you spend.
A lack of clarity is one of the main reasons that people struggle to find out how to save money.
If I were to ask you exactly how much you’ve spent on food, books, or clothes in the last month, would you be able to tell me? Down to the penny? What if I ask you to tell me how much money you spent on education, transport or electricity in the last year?
The only way to have this data is to make a habit of writing down everything you spend. I know this is an uncomfortable activity. But nowadays, with debit cards and mobile apps, things have gotten so much easier.
Think like this. To keep track of your spending in the past, you’d have to carry around a notebook with you everywhere you went and make a note of every penny you spent at the bakery, in the shops, or at the supermarket. Then, you’d have to manually consolidate these notes and add up all of your spending. This is what the finance guru on television would tell you to do.
Even a few years ago, with the arrival of personal computers, you’d still have to copy this data over onto a spreadsheet to consolidate it.
Nowadays, it’s much easier to keep a track of your expenses. All you need to do is install an app on your phone. If you usually do all your spending on a debit card, you don’t even have to make a note in the app every time you make a purchase. Some apps even integrate with your bank account to do this automatically.
In other words, the most fundamental stepping stone to knowing how to get rich is easier than ever. With it, you can easily find out if you’re the kind of person who spends more on lottery than on books or any other category. This clarity shows if you really know how to save money and how to spend on the areas that help you grow.
Please understand that I’m not here to make any kind of judgment. If you consciously decide that your life would be better for spending money on the lottery, that’s your choice. You will also be fully responsible for the results of your choice.
What I mean is that, in having clarity where your money goes, you will be able to confront the truth. Truth is a light, a bright light that serves to eradicate the mold that is ignorance. The truth helps you to stop blaming your results on external factors. The truth helps you take responsibility. Maybe that’s why so many people are reluctant to take control of their finances, because the truth can be uncomfortable.
Once you have the courage to take on that responsibility and make a habit of writing down what you spend, you can move on to the second step of the journey to getting rich.
Remember, essentially, all you have to do is spend less than you earn and invest the difference wisely. Now you know how much you spend, it’s time to consider how much you make.
How much have you earned, in total, throughout your life?
Look at your current job and the monthly income you receive. I’m going to ask you a question now. Are there any possibilities of increasing your earnings over the next few months to get closer to financial independence? If not, what changes can you make?
Make an experiment. See how much money you have earned throughout your life, approximately. From the first money that you earned from your parents, or from an internship, or from your first salary to your income last month.
You can get a general idea of this by looking at your annual income tax statements, or even just by calculating in your head to get a rough number. It’s not essential that you come up with an exact figure, all you need is to get an idea.
Let’s assume, that by your calculations, you have earned 1 million dollars over the course of your life.
Now, open your bank account. Have a look at how much money you currently have saved, and at where you’re making investments. If you’ve already earned over 1 million in your lifetime, but your current savings aren’t over 1000 dollars, what does this say about your ability to save money? I use the word “ability” here because it is exactly that, a skill that you can learn and perfect.
This is the first step to approaching the truth and to getting rich by increasing your clarity. This exercise should give you a sense of how much money you’ve earned in the past. Next, we need to look at your current situation.
What is your actual hourly net wage?
Ready to confront the truth one more time? If you’re employed, you probably know your monthly salary off the top of your head, right?
The problem is that salary isn’t all yours. Part of it goes on tax, and part of it on the costs associated with your work.
So let’s calculate how much you really earn every month, your net salary.
First off, deduct what you spend on Income Tax and other taxes. Next, go ahead and subtract everything you spend on making yourself available for work: transport costs, work clothes, eating out etc.
Some costs are obvious, others not so much. For instance, if you wear makeup to work that’s a cost you might not have to bear if you had a choice or the option of working from home where you wouldn’t need to do your makeup. If you use a car, you need to factor in depreciation, insurance, parking, maintenance, gas and fines. If you wear business attire that you wouldn’t wear day-to-day if you worked from home, that’s another associated cost.
You done calculating? So, after deducting absolutely every expense you have just to be minimally able to go to work, you now have you real, net salary.
Now, let’s take it a step further. Calculate how many hours of your life your job takes up. I don’t just mean your working day, but also the number of hours you spend getting ready, commuting, overtime, the time you spend at home out of hours responding to work emails , making calls to solve problems and the amount of time you take from your private life to network or go to training to perfect your skills.
With this data, you’re bringing yet more truth and clarity to your personal finances. By now, you should have a good idea of how many hours of your day are dedicated to your job. Now divide the net salary you just calculated by that number of hours. There you go: now you know exactly how much you make an hour, in real terms.
Is that income compatible with your expenses?
Compare your expenses against your net hourly wage.
To make more conscious choices when you consume, you need to know exactly how much you earn and how much you spend.
Imagine that after all those calculations you’ve worked out that you make 5 dollars an hour. Now imagine you’re walking down the street on a hot day and you’re thinking about buying a cold drink for 5 dollars. Is it worth you trading an hour of your life for that drink?
If someone invites you to a party and the cover charge is 30 dollars, is it worth trading six hours’ work just to get into the club?
There are no right or wrong answers to these questions. However, now that you’re closer to the truth and have clarity on your expenses and income, you can make decisions on a much higher level. You see how much harder it is to make good decisions and try to learn how to get rich without that kind of clarity?
What’s a conscious decision? You can decide that yes, it’s worth trading that many hours of your life for such and such an item. Or maybe now you’ve got more clarity about your finances, you can decide that it’s not worth it.
The point of our talk today isn’t to point the finger and tell you how to spend your money. That decision is entirely yours, and it depends on your values and lifestyle.
The exercise we did here was just to give you more clarity on where your money goes. Only with that clarity will you be able to balance out what you earn and what you spend, to increase the difference and be able to invest in future and accrue wealth to achieve financial independence.
Be clear about how to get rich
It’s very common for people to keep complaining about a lack of money. Everyone would like to earn more, but few people know how much more they would like to earn and why.
This is a big problem in developing good plans and executing smart strategies. If I have no idea how much I want to have money, it is obvious that I will find it difficult to make good choices and have realistic plans.
Now I’m going to ask you to do one last exercise, which is very fast and simple. I want you to answer, in writing, the following questions:
What is financial freedom for me? How much money do I want to have invested? How much money do I want to make monthly to be able to provide a quality life for myself and my family?
Write down the exact value of your answers. How much do you want to have saved and how much do you want to receive each month? By doing this, you will already be ahead of most people who don’t have the slightest ideas about their own finances. If you’re interested in taking a step further and gaining even greater clarity about how to become rich, visit arata.se/moneytaboo to continue learning more.