8 Things About Getting Rich You Probably Aren’t Aware Of, According to Chelsea Fagan
Written by
Nicole Spector
Edited by
Molly Sullivan
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
The idea of becoming rich may hit us in extremes. We may deem it super easy or dramatically difficult. In reality, building wealth is usually more nuanced and defies being categorized as either “easy” or “hard.” One thing it may certainly be, if you don’t currently hold a vast amount of wealth, is mysterious. What do you really have to do to get rich if you didn’t inherit millions? What are the lesser known steps?
In a video posted on the YouTube channel she co-founded, The Financial Diet, Chelsea Fagan explored eight things about getting rich that you probably haven’t heard much about, as they’re just not openly discussed.
It’s Not About the Little Expenses
Feeling guilt over that weekly run to Starbucks for a decadent latte? Regretting the $5 bracelet you bought at Marshalls on a whim? Of course, little expenses can add up and take a toll. But it’s the big stuff that you need to be concerned about when building wealth.
“It’s not because you buy avocado toast once that you’re not going to buy a home,” Fagan said, adding that you should look at your overall major lifestyle expenses instead of fixating on the little things.
Resisting Lifestyle Inflation
As you get older, you may start to see peers getting ahead of you (or so it seems) financially. People move up in their careers, buy property, start a family, travel more luxuriously, etc. And you may start to feel a little bit of unspoken pressure. Why aren’t you at that same level? Stop yourself right there. If you go any further with these types of thoughts, you’ll risk succumbing to lifestyle inflation.
Lifestyle inflation, also known as lifestyle creep, is when you up your spending as your income rises, often leading to a higher standard of living that can hurt your financial goals and put you in a position of accruing debt. The main issue here is that you may be making more money, but is it enough money to justify leveling up so much?
“A lot of Americans are living beyond their means,” Fagan said.
Automating Savings Is Key
“One of the key aspects of saving money is automating so you don’t have to think about it,” Fagan said. To automate effectively, make as many costs in your life “fixed costs” — meaning that even as you make more money over time, they stay the same (think mortgage or rent payments, car insurance premiums or child care expenses).
Automating savings is more than just a technical banking move. It’s a way of making savings a fixed cost, too — but one you increase as your earnings go up.
Wealth Begets Wealth
Though self-made millionaires are becoming more common in an age where entrepreneurship is also becoming more common, the abysmal fact of the matter is that most millionaires are heirs. They’ve been set up with wealth by their parents and because of it, they have more opportunities to get even wealthier.
“Having money makes it easier to make money,” Fagan said. “Wealth begets and perpetuates wealth.”
But here’s the good news: The wealth you make on your own will also beget wealth. For example, the more you save, the more you can invest and the more you invest, the more you will benefit from compound interest.
“And once you ascend to a certain level of wealth, it is easier to stay wealthy,” Fagan said.
Increasing Your Income Is More Important Than Cutting Expenses
This point ties into the aforementioned one about how little purchases won’t harm your financial situation the way that major expenses might. Rather than focusing on trimming expenses and then trimming them further, focus on ways to increase your income. This is what will have a sizable impact.
“You can cut expenses as much as you want,” Fagan said. “But at the end of the day, unless you’re making enough money to actually save a significant amount from cutting down expenses, it is much more crucial to focus on earning more.”
During times such as these, when inflation is high, this point hits hard. Making a ton of sacrifices to save, say, $50 a month isn’t going to be nearly as effective as making sacrifices of time to generate, say, $1,000 a month with a side hustle.
Working in Certain Industries Is Like a ‘Wealth Cheat Code’
Another abysmal fact: Not everyone makes the same amount of money even if they work the same amount of hours and put in the same level of effort. And some industries will give you annual bonuses that you can use for investing, without having to dig into your savings.
Fagan highlighted the tech sector and the finance and banking sector as being bonus-friendly. Corporate jobs can also provide you with lump sums in the forms of bonuses or fat raises. You may also get stock compensation from your employer. So, if you’re just starting out in your professional life or making a career change, look at roles in industries where you can expect bonuses or stock options.
You Mustn’t Bail on Stocks During Economic Turbulence
You have to take advantage of compound interest — and that means having a long-haul investing strategy and riding out rocky times in the market.
“You need to make sure that your money is invested during the most lucrative days, which are pretty much totally unpredictable,” Fagan said. “We also have to remember that the stock market historically bounces back from turbulent periods.”
Buying a Home Isn’t Always the Smartest Choice
Homeownership has long been touted as a pillar in the American Dream. But it’s not at all what it used to be in, say, the 1950s. It’s become far more financially complex and flat out expensive. Buying a home may feel like “the thing to do” once you reach a certain age or start a family, but it can be a wealth-hindering mistake.
“Despite the age-old boomer advice that renting is just throwing your money away, or the people who treat owning a home as crucial to long-term wealth building, not only is that not always true, in some cases it can work against you,” Fagan said.
Renting can be the smarter, healthier financial option. There are situations (and locations), where renting a home over time is far more affordable than owning.
More From GOBankingRates
