A Simple Framework For Getting Rich

Getting rich - a practical framework

It’s fair to say that this blog attracts readers across many different countries, income levels, and age groups.

That being said, we all have one common objective in mind – getting rich.

Let’s make it clear, it’s not the only objective.  But it’s an important one, and contrary to what some people may say, there’s absolutely nothing crass about it.

To begin with, trust me when I say that being rich is much better than not being rich.

I’ve got first-hand experience of the latter.  And while I wouldn’t (yet) consider myself rich, I can certainly tell you that my life got immeasurably better once I no longer had to worry about money.

The way I always looked at it is we all have only so much time on this earth, call it somewhere between 60 and 80 years.

As long as getting rich doesn’t get in the way of living a life true to our values, why not behave in a way that will see our wealth grow with time?

The more fortunate of us have grown up in families that taught them how to get rich.  Others have had to figure out their own way over years and decades – and that includes me.

In today’s post, let’s explore a simple and practical framework you can use to get rich yourself.

It’s All Relative

To begin, you’ve got to acknowledge that the concept of “rich” is firmly grounded in relativity.

The only reason most people think someone with a net worth of $10m is rich is that the vast majority of people out there have a net worth far below that number.

The Wealth Pyramid

Getting Rich - Wealth Pyramid

Top Of The Pyramid

Getting Rich - Top of the Pyramid

Source: Credit Suisse

But if you wake up tomorrow and everyone’s net worth is suddenly $10m, your old benchmark of what constitutes “rich” will no longer apply.

The same goes for other “traditional” markers of wealth.  The moment everyone drives a Ferrari, owns a Birkin bag, and wears a Patek Philippe is the moment those items lose their ability to denote wealth.

Now, some of the purists may scream and shout here – because instead of defining wealth with money, they define it with time.  Not having to go to work 5 days a week and all that good stuff.

Point taken – but the underlying logic doesn’t change.

The very reason we consider working 0, 10, or 20 hours a week to be a luxury is because the vast majority of other people have to grind it out for 40, 50, or 60+ hours.

The moment everyone else starts working 10 hours a week is the moment your benchmark moves yet again.

Just as important, the definition of “rich” is relative to where other people are now.  Objectively speaking, anyone with a TV, a smartphone, and a used Toyota Corolla is much richer than the tycoons of the 19th century.

But it doesn’t really matter, does it?  Deep down inside, you compare yourself to Jonny round the corner, not Vanderbilt or Rockefeller.

This is more than just a philosophical conversation – it has a direct read-across to the way you should think about getting rich.

Because by default (and assuming the same starting point), accumulating more capital than the people around you involves three things:

#1: Saving more than other people

#2: Earning more than other people

#3: Compounding your money for longer than other people

Yes, it’s that simple.

Now, in real life, people usually get rich through some combination of all three.  However, let’s start by zooming in on each component.

Getting Rich: The Power Of Savings

This one is a no-brainer.  If you save more than your peers and generate the same investment returns, you will accumulate more capital.

To illustrate the point, consider that even an average salary combined with a savings rate of about 25% will make you a millionaire in about 25 years:

Path to your first million

The reason?  Well, it’s because most other folks (even on much higher incomes) just can’t manage a 25% savings rate.

Similarly, you can lose your job in just 20 years – as long as you can manage some relatively undemanding savings rates:

How to lose a job in 20 years

But fail to save, and you will find yourself in a financial corner pretty damn quick.  That’s exactly how people can be poor on £250k a year.

Unfortunately, while saving money is important, it can also be a bit of a head fake – because there’s the natural “cap” in terms of your overall earnings.  You simply can’t save more than 100% of what you make.

In addition, the law of diminishing returns looms large.

Sure, there are some easy wins.  Get rid of the SUV, move to a smaller house, eliminate that consumer debt.

But once you knock those out, you find yourself in a constant cycle of renegotiating your bills and looking for bargains – only to end up where you started.  It’s time-consuming and frankly somewhat depressing.

Once you find yourself at this point, you are much better off focusing on making more money instead.

Raking It In

Over a 40-year career, you can expect to spend about 83,200 hours working – and that’s assuming a regular nine-to-five job.  Splash in the inevitable overtime, and you can easily clock 100,000+ hours.

One hundred thousand hours.  Let that sink in. I remember being quite shocked when I ran that mental math back in my early 20s.

But being a pragmatic person with no other options, I figured that if that’s how much time I will spend working, I might as well use it to make as much money as possible.

Thankfully, making the big bucks can be easier than people make it out to be.  But it does involve challenging the status quo, a willingness to reposition yourself, and a relentless focus on following the money.

If all that feels mightily uncomfortable, let me remind you:

An average savings rate on an average salary will not make you rich

(with just one exception – see below)

Thus, if you are not willing to save more than others (I wasn’t), you better be ready to earn more than others.

By the way, I am intentionally ignoring entrepreneurship as a way to max out your earnings.  If you’ve got a burning desire to run your own business, you should definitely do so.

But if you are only viewing entrepreneurship as means to getting rich, you should probably reconsider.

Then there’s yet another and often overlooked component of earning more money which is how much your money earns for you.

Once again, there are some easy wins here – because over long periods of time, equities return about 8%-10% per year.

S&P 500 annual performance

In theory, this should be the minimal baseline for everyone.

However, most people’s actual return is far below that number.

Why?

Some fail to invest, uncomfortable with the perceived risk.

Others panic and sell after massive corrections.

And yet others invest and hold – only to see their returns decimated by high fees.

If you manage to avoid the three pitfalls above, you are already miles ahead of the game.  Bonus points if you take advantage of tax-efficient investing.

Want your money to work even harder?  You could consider real estate.

Make no mistake here though – it comes with a host of challenges, and it sure isn’t as passive as some folks would like you to believe.

But provided you are willing to put in the work, it’s one of the best ways of getting rich for ordinary folks:

Building wealth with real estate

Sure, there are assets with even higher returns than equities or real estate. But all of them carry significantly higher risk – and the trade-off may not be worth it.

That being said, there is a relatively low-risk way to get rich – but sadly it’s only available to a select few.

Getting Rich With Time

If you are in your teens or early 20s and reading this, consider yourself one of the most fortunate people in this world – because unlike the rest of us, you’ve got the gift of time.

I could even go as far as to guarantee that you will get rich in your life.

All you need to do is to put $500 a month to work in an S&P 500 or a global index tracker – and increase the contributions as your income grows

$500 contribution per month

There is a catch, however.

Every day that you procrastinate carries a punitive cost.

Have a look at the chart below:

Getting rich by starting young

The contributions you are making between 21 and 30 will represent almost 40% of your total pot at the age of 60 (allow me to remind you that at 60, you are still many years away from the conventional retirement age!)

The simple fact of being young puts you in a privileged position of getting rich even if you are on an average salary and have an average savings rate.

But you won’t be young forever.  In other words, you snooze – you lose.  Say hello to the grind – or an above-average savings rate.

And now for the tricky part…

Building Your Own Recipe For Getting Rich

Much like the grocery store this coming Christmas, it’s unlikely you’ll have all the components at your disposal.

I was okay on #1, quite good at #2, and frankly pretty crappy at #3.  It cost me about 10 years of compounding – time I will never get back.

To make up for it, I spent my 30s grinding it out in investment banking and buying up real estate on the side.

Ultimately, I ended up ahead of where I would be otherwise – but I sure paid a price for it.

In contrast, there are people who aren’t that fussed about making more money.  Some aren’t willing to sacrifice the time with their families.  Others might simply love what they do.

For them, the road to getting rich will lie in some combination of #1 and #3.

And those who are late to the financial independence party will need to be honest with themselves – their recipe for getting rich should be a combination of making more money – and saving a disproportionate chunk of it.

Like with most things in life, there is no single or “right” way to get rich.  It’s all about picking the journey that’s right for you – and getting on with it.

Because the moment you stop trying to get rich quickly is the moment you can start getting rich slowly.

As always, thank you for reading – and good luck!


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Banker On FIRE is a London-based M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.

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15 thoughts on “A Simple Framework For Getting Rich”

  1. Very interesting article, especially the graphics – wish my 20 y.o self had seen them! Property investment (Real Estate) has been a great way of making money in the UK, largely through the ability to leverage large sums at low interest rates, combined with exponential growth in capital values, but that party is well and truly over and, with yields diminished and regulation increasing, many are divesting themselves of properties.

    1. I wish I’d seen those graphs at 20 as well!

      Real estate is one of the few ways individuals can climb up the wealth ladder. The way the UK government has reserved it for large corporations and professional landlords is abhorrent.

      I am lucky enough to be able to invest in real estate in North America but not everyone is in the same boat (though we do have a lot of US readers here)

  2. To begin with, trust me when I say that being rich is much better than not being rich.

    I’ve got first-hand experience of the latter. And while I wouldn’t (yet) consider myself rich, I can certainly tell you that my life got immeasurably better once I no longer had to worry about money.

    Problem is that this premise is far from being generally true if by ‘not being rich’ we’re not talking about poverty type levels of wealth.

    I think it is true to say there is a general pervasive belief that being rich, or relatively richer than your are now, is much better, but that this belief isn’t borne out in practice, i.e. when you get richer things aren’t much better, they’re possibly a bit better, but usually much the same.

    This is our tragedy, but its also our essence – if we stop believing it we don’t get out of bed, but I think the data is in on this in the positive psychology literature and it simply isn’t a ‘trust-me’ type fact.

    1. So overall, I agree with you. Thankfully, I never had to experience true poverty – or things like war and famine.

      That being said, I vividly recall times in my teens when my father’s after-tax salary was exactly $10 more than our bare-bones budget (my mom was still unemployed at that time)

      There’s a pervasive worry and anxiety that you experience when you know that any unforeseen expense, no matter how minor, will topple you over. It’s like flying a plane 10 feet above the ground – can be okay, but do it long enough and you are guaranteed to run into trouble.

      No, it’s not poverty – but I wouldn’t wish that experience on anyone.

      Obviously very different from a situation where you have $5m and think $10m will make your life so much better – I agree with you it won’t.

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  4. I don’t disagree with your methods but challenge the premise that having more than others is a cogent definition of being rich. My preferred definition and response when asked if I’m rich for being able to cease paid employment and derive my income solely from investments in my 40s is that my needs and wants match my resources of which money is just one of them. Health and time are the other two components. Take away any one of these and the rich thing really stops working. Having all three parts working in concert make me feel rich in a way that I simply didn’t when I was still employed with circa double the income but very little time or peace of mind to do the things I find meaningful in life. Having enough has become a much stronger driver than having more (than the next person). It allows me to evaluate my life satisfaction and make adjustments as needed without having to compare myself with anyone else, so remains in my control whilst having more than others will always be a moving and ultimately unattainable target. Quite honestly knowing that I have more money than most other adults in the world is something I’m more inclined to feel uncomfortable about rather than derive any sense of satisfaction from.

    1. Thanks Frank, appreciate the thoughtful perspective.

      Let me ask you this, though: notwithstanding the points above, wouldn’t you say you have more than most other people?

      The ability to cease employment is something that a lot of people want, but very few people have. Now, you don’t necessarily need to have more money than others to get there but it does take a combination of investment income and a savings rate that other people don’t have.

      Ultimately you are 100% correct that it’s about having enough, but humans are social animals and very often, “enough” is closely related to what other people have…

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  6. A couple of things:

    You open this post suggesting that you no longer worry about money because you’re wealthier. Yet you write a money blog and seem to spend significant amounts on time worrying about spending decisions snd investment return. From my perspective it seems that you worry about money is a similar frequency and intensity to when you were “poor”… it’s just that worrying now helps you feel superior/good because you compare yourself to other (and your past self).

    Secondly I disagree with your understanding of the word rich. A nurse can be rich on a salary of £25k as long as his/her spending is £20k a year. In fact I’d suggest someone with that profile worries about money significantly less than a high earning CEO that sends their kids to private schools and has a country club membership.

    Personally I think the nurse is richer than the CEO, both financially and emotionally. Less wealthy, but richer.

    1. Thanks Balanced View – appreciate your view and I really enjoy the thoughtful debate on these topics.

      I wouldn’t say I worry about money. Yes, I think about it a lot – partially because of my job and partially because as you say, I run a money blog. But I stopped worrying about it once my net worth crossed a certain mark years ago.

      I also don’t disagree with you on the definition of rich. Still, I would say the reason the nurse is rich (or wealthier) is because she has a bigger gap between income and expenses than the CEO. Possibly less stress also though I can’t imagine being a nurse in the current environment is easy…

  7. Well yes – according to UK Office for National Statistics data I have ‘more than most’ which means I’ve checked my position in relation to the rest of the population which now suggests I’m contradicting myself by stating that my financial position compared with others is unimportant to me!!

    Putting this to one side, I completely agree with your methodology for getting to this position to the extent that it appears as though we may have followed/been following broadly similar paths.

    Congrats on an interesting, thought provoking article.

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  9. Investing on market at the beginning of 20’s is a great idea to save some money for future. Liked the investment-age graph. Saving more money is very equivalent to earning money. If you are business man and want to save some good amount of money, you can start investing on safe shares. Also, you have thousands of modern solutions like digital platforms to rely on.

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