How to Get Rich From A Job – 5 Things I did to Become a Millionaire without Starting A Business
Everybody who understands the power of money desires to know how to get rich. More often than not, the answers to the question of how to get rich only generates more questions.
Typical suggestions on how to get rich include starting a business, investing or becoming a famous celebrity.
Yet, starting a business or investing require money to begin with. The lack of money prevents you from getting more money. On top of that, there are thousands who dreamt of stardom and failed, for every successful celebrity out there.
Like it or not, the most conventional method of getting money today is still to trade your time for money; i.e to get a job.
If all you have now is a job and you have no idea how to start a business, invest like Warren Buffet or sing and dance like Micheal Jackson, does that mean you can never be rich?
In my opinion, it is possible to become rich through a job. But first things first, what do we even mean by being rich?
What does it Mean to Be Rich?
To me, being rich simply means to be financially free. It means that your monthly passive income outweighs your monthly expenses. I first came across the idea of passive income and financial freedom from Robert Kiyosaki’s book tilted, Rich Dad Poor Dad.
Based on this definition, a Wall Street Trader earning $3 million per year but has a debt of $6 million dollars in expenses is no richer than the Engineer earning $100K per year with $50K in expenses. The playing field is levelled.
Playing Good Offence and Defence helps in Getting Rich
In order to get rich, how much money you manage to keep matters just as much as how much money you make. In order to to get rich, you have to play both sides of the equation.
At the point of writing in 2019, I have just accumulated a net worth of a million dollars.
Even though a million dollars nowadays is not considered a lot, I am pleased to say that I have sufficient passive income that can cover my monthly expenses.
In other words, I achieved financial freedom after working for 12 years without starting a business or becoming a super star. I did save a lot and invested wisely in Real Estate Investment Trusts (REITS) which are the source of my passive income.
Here’s how I did it.
1. Separate your Savings account and Spending account
The secret to being able to save money is to change the way you save.
Most people receive their salary in one bank account and then spend money from that same account. Whatever remained in that bank account at the end of the month was considered their savings. The results of saving this way are often lacklustre.
What I did differently was to create a separate savings account when I started work. Every month, I would pay myself first by transferring the amount I wanted to save into another account. Whatever remained was the amount that I was allowed to spend.
This principle of savings was covered in “The Richest Man in Babylon” where it was advocated to save 10% of your monthly income.
On average, I saved about 50% of my monthly income, way above the recommended 10%.
The reason this method worked for me was that I enjoyed seeing the numbers in my savings account grow. Every increment of $5K was seen as a milestone.
Sometimes, I would intentionally save a few hundred dollars more in a month to hit a new milestone. It gave me joy and a sense of security to see my money grow.
2. Keep Expenses Constant even as Your Income Grows
When I started out as an Engineer in 2007, I was earning $2800 per month in basic pay. In addition, I was also getting shift allowance and overtime pay running night shift as an Equipment Engineer. This meant that I could earn up to $4000 a month.
In Singapore, 20% of your monthly salary is automatically deducted and placed in a fund called the CPF (Central Provident Fund) which is a sort of compulsory savings scheme.
This means that I took home $3200 per month instead of the full $4000.
However, I had to pay off my study loan which amounted to $30,000. For the first 20 months of my working life, I repaid $1000 per month to clear off the loan.
Of the remaining $2200 dollars, I kept my spendings at $500 per month and gave my parents $200 in allowance. I then saved the rest.
Breakdown of Savings and Expenses
- Monthly Salary = $4000
- Monthly Take Home Pay =$4000 x 80% = $3200
- Expenses = Study Loan + Living Expenses + Allowance for Parents = $1000 + $500 +$200 = $1700
- Monthly Savings = Take Home Pay – Total Expenses = $3200 – $1700 =$1500
My Company pays an average of 4 months’ bonus per year. I saved 100% of my bonuses.
So, after the first 20 months of work, I was debt free and had savings of (2o months x $1500 + 4 x $3200 =$42,800) in my savings account.
I kept my expenses constant even after my pay was increased by $300 in the annual review. Also, I could save $1000 more per month after clearing my study loan.
In the next 16 months, I saved even more (16 months x $2800 + 4 x $3440 = $58560)
Within 36 months of work, I have saved a total of $42800 + $58560 = $101,360.
I was pretty lucky that nothing major happened in my life during that first 3 years of work. Any health issues or unforeseen circumstances requiring large amount of money would have thrown me off course.
Saving Aggressively is Different from Ultra-Frugality
While we are on the topic of saving money, I would like to state my boundaries.
We should save money as far as our basic needs are satisfied and our professional image is maintained.
What do I mean by basic needs? Take for example something as simple as having a meal outside. We can save money by avoiding fancy restaurants that cost $50 dollars per meal and opt for the Chicken Rice that costs $3.50.
However, I have seen an Engineer at my workplace eating only plain rice with gravy doused over the rice. My company issues a subsidy of $1.50 per day. Having spent $1 in the morning on bread, the engineer was left with $0.50 for lunch. Not wanting to spend additional money on side dishes, he went for plain rice which costs $0.50. Gravy was free.
To me, saving money to such an extent is too much.
I had another Engineer who wears the same T Shirt for 5 days straight because he wanted to save on buying clothes and water on washing. The T Shirt also had holes in them.
Now, that is too much also. It affects how people look at you professionally.
You can avoid an Armani Suit that costs $5,000 but wearing clothes with holes in them is on the other end of the spectrum.
3. Start Investing Early and Build Up Passive Income
As I knew that I did not intend to start a business, nor become a super star, my only option left for generating passive income was to invest in stocks.
When the Financial Crisis struck in 2009, stock markets crashed. I was lucky to be sitting on cash of over a $100K at that time. This gave me the opportunity to buy stocks on the cheap.
I set aside $30,000 as my emergency fund and invested all the rest in Real Estate Investment Trusts (REITS).
Over the years, I have continued to build up my portfolio in REITS and today, I have a portfolio of $460K generating $30K in passive income annually. As usual, I save 100% of the dividends I receive and reinvest them. This lets compound interest do its wonders.
Investing is actually not an option. Rather, it is a must if you wish to beat inflation. By procrastinating to start investing, you are not remaining still, you are going backwards.
For those who wish to start learning how to invest, I recommend this book “The Five Rules of Successful Stock Investing”. It is written in very simple language and introduces you to the fundamentals of picking stocks.
4. Avoid debt as much as Possible
At the point of writing, I have only my home mortgage to service. I do not have any credit card debt nor do I own a car (cars in Singapore are very expensive) . When I moved into my new home in 2017, I paid for renovations, furniture and electrical appliances entirely in cash.
For credit card bills, I always pay them off in full without incurring extra interest.
When I got married, I did not have a lavish wedding at a 5 star Hotel. What I did was to have a buffet dinner ( with really good food) at a roof top bar in a Boutique Hotel. I invited only a small group of 20 plus close friends and my immediate family.
This made the event more personal and I got to sit down to chit chat with my friends and discuss about the next phase of my life.
My wedding only cost me $8,000 which I paid for in cash. This is compared to setting up 45 tables in a 5 Star Hotel with each table costing $1,688.
You can read more about the horror stories of couples overspending and getting into debt for their weddings.
An important tip on how to get rich is to eliminate the mindset that there are certain things you should splurge on. If you adopt this dangerous mindset, you are at great risk of spending lavishly on the following:
- Wedding (because it is once in a life time)
- Your Honey Moon or Travel (because you only live once)
- Your Home (because you deserve a nice home for working so hard)
- Food ( because it is part of enjoying life)
It is unwise to spend beyond your means. My philosophy is that if you need a loan to buy something, you should not be buying it.
5. Increase Your Income by Becoming Good at Your Job
Directly increasing your earned income from your job is the simplest way to get richer. After that, remember point number 3 and start investing to get your money to work for you.
Advice for career advancement is a big topic that warrants an entire blog post on its own.
However, there are a few tips and correct mindset that helped me to advance in my career are as follows:
- The only way to get more pay is to do more than you are paid for. Go the extra mile.
- You should take Ownership of your career, not your Boss
- When it comes to Promotions, put in the firewood first, then expect the heat. This means that you should already be capable of performing the next level job before your promotion. You should not expect to be promoted first before starting to do the job.
- Do not resign right before a promotion, secure your milestone before leaving. This applies for cases where you are passed over for a promotion.
- Sell yourself and what you are working on. No one knows what you are capable of if you do not sell yourself.
- Work on your presentation skills, technical skills only are not enough
There are lots more that I could right but I shall leave it for a separate post. By following the above tips, I have managed to progress in my career. As of today, I am making $170K per annum.
Coupled with playing good defence, saving and investing aggressively, I crossed the million dollar mark in net worth after 12 years of working.
In Conclusion
The message I wish to send is that it is possible to get rich by holding on to a job that pays reasonably well.
You do not have to earn insane amounts on Wall Street and neither do you have to be the next Bill Gates.
There is hope for the average salaried employee to attain financial freedom through playing proper offence and defence.
You will not get rich overnight, but getting rich slowly and surely over an extended period of time is definitely achievable.
Start by inculcating good saving habit, avoid indulging in material pursuits to build up your nest egg. Find a job that pays and rewards you for the effort you put in to becoming a better employee.
The endgame is to generate sufficient passive income to cover your expenses. You will have true freedom only when you have achieved this.
Give your comments below and share your own stories of how you became financially free.