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The Rich Do Have a Secret

By Dr. David Eifrig, editor, Retirement Millionaire
Wednesday, March 8, 2017

Many Americans – average folks working to build a comfortable life – assume the "rich" have a secret. It seems they know something about "how the world works" that the rest of us don't.
If regular folks could just figure it out, they'd be wealthy, too. They'd live with less stress, more time, and more money. And money, after all, gives you the freedom to do what you'd like to do.
It turns out, the wealthy do harbor a secret – more than one, in fact. And these secrets not only build wealth, they allow you to use it to live the life that you want to live.
Today, I'm going to share one of the most important secrets to building financial security with you...
The first step to building wealth is not to increase your income... The first step is to curb your spending. Outside of a few things, spending rarely brings joy. Identify the things you truly enjoy spending money on, and forget the rest.
Humans are notoriously terrible at predicting what will make them happy. "We expect the next car, the next house, or the next promotion to make us happy even though the last ones didn't and even though others keep telling us that the next ones won't," Harvard psychologist Dan Gilbert explains in his book Stumbling on Happiness.
We get a nice warm feeling when we buy a new television or pair of shoes. So we tend to search that feeling out. Retailers and advertisers have become adept at targeting it.
But it's short-lived. The thrill of these things wears off quickly. The possessions don't change our lives in any way.
By contrast, saving money and using it to increase your personal financial freedom does make lasting improvements to your well-being and quality of life. Money saved generates future income. Income is what sets you free. And freedom is what truly makes us happy.
But many people do the exact opposite of saving. They don't just spend the money they have... They spend money they don't have in pursuit of some unachievable happiness.
Folks in America like to keep up with the Joneses. The problem is, the Joneses are financially irresponsible. They've got too much house, leased luxury cars, and too much credit-card debt. If you try and keep up, you'll get dragged down as well. A 2013 study showed that 47% of Americans, even many with high incomes, wouldn't be able to come up with $400 in cash to fund an emergency.
When you see someone who seems to live too well for the job he has, he doesn't have a secret skill. He often has a secret pile of debt.
But you don't have to become a monk. One benefit of wealth is having money to spend on a few things that bring you joy. For me, I don't hold back when spending on books or travel. It's different for each person.
Once again, a good rule of thumb is to choose one or two things you truly enjoy spending money on. Then cut back to just the basics on everything else.
For example, I still drive the same 13-year-old Hyundai. It serves me well, and I don't have to make payments on it. Instead of laying out money for a new BMW that won't make me happier... I can spend the money that would have gone to a car payment to treat myself to a couple of really nice dinners each month.
When you learn to stop buying things that don't make you happy, you'll have the freedom to enjoy the things that do... like time or relaxation.
All you need to do is give up the things that don't make you happy in the first place.
I think everyone should start by socking away at least 10% of your annual income. Try to bump that up to 15% as you get comfortable with your new spending habits.
The key to saving isn't about raising your income. It's not about saving a penny here and a penny there. It's about understanding yourself better and shaking all the frivolous desires from your mind.
Once you've got that down, you can set your money to work for you...
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig

Further Reading:

"Outliving one's retirement savings is the biggest fear of most people nearing retirement age," Dave writes. And for many Americans, it's a real, frightening possibility. But one type of investment may be the solution – and the single best way to plan for retirement. Learn more here.
"Keeping your wealth stored in a good, diversified mix of assets is the key to avoiding catastrophic losses," Dave writes. In a recent essay, he breaks down asset allocation into its simplest form to help you build wealth long term and sleep well at night. Don't make yourself vulnerable to a crisis... Read more here.

Market Notes


Today's chart highlights a company that will benefit from new government plans...
Big infrastructure spending and corporate-tax reform were two of the primary drivers of Donald Trump's presidential campaign. The market spiked after his election, but stocks set to benefit from Trump's promises have outperformed...
For proof, we look at shares of toolmaker Fastenal (FAST). The $15 billion industry giant manufactures everything from safety equipment to power tools... and all the nuts and bolts needed to hold everything together. Fastenal would benefit from a massive infrastructure bill, for which it could supply most of the parts. But even more important is that Fastenal's effective tax rate is nearly 37%. So a reduction in corporate taxes would lead to far bigger profits for shareholders.
In the chart below, you can see where Fastenal shares spiked after the election. The stock is up more than 11% in 2017 and just hit a fresh, multi-year high. If Trump sticks to his promises, shares could continue even higher...

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