Getting Rich is Simple

Getting rich is far simpler than many people make it out to be. A straightforward nine-word strategy sums up the core of what you need to do:

• Spend less than you earn.
• Invest the rest.
• Repeat.

Keep that up for long enough while earning a decent rate of return on your investments, and even a person of modest means can wind up with a substantial nest egg.

Of course, that raises a key question: If getting rich is so simple, why are there so few multimillionaires running around? There are two key reasons. First, building wealth through investing takes time. You have to make the conscious choice to attempt it, and then you need to stick with it for decades to make it happen. That brings us to the second reason, which is that while the rules for getting rich may be simple to describe, they are by no means easy ones to consistently follow.

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Life gets in the way

The biggest challenge you'll face is that even if things go right in your life, you'll usually have several high-priority expenses competing for your money -- all of them real and important. With all those demands on you today, it can be easy to put off investing for tomorrow.

For instance, if you've ever looked at how compounding works, you've likely realized that the first dollars you sock away are the ones that will be worth the most when you retire. Yet when you're just starting out in your independent life as a working adult, you likely have both a low salary and a bunch of start-up costs like buying furniture and work clothes. You may also have student loans and other debt, which will make it challenging to find spare money in those early paychecks to start investing with.

Fast-forward a few years, and you may be starting a family. That brings with it its own new set of costs, along with the potential for a sharp reduction in your household income if one parent stays home or takes on a reduced work schedule to care for the children. And of course, kids' hobbies only tend to get more expensive as they get older, at least until they get to college, which comes with its own set of crazy expensive costs.

Once your kids are out of college, you may still be working -- and possibly in the highest-earning years of your career -- but waiting that long to get started with investing adds risks of its own. Compounding will have much less time to work its mathematical magic on your portfolio, meaning you'll have to sock away a lot more money each month to wind up in the same spot you would have if you had started investing earlier. In addition, you may end up retiring younger than you expected to, cutting off your ability to save and forcing you to start pulling money out of your investments earlier than you had planned.

The simple trick to help you get rich anyway

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So, recognizing the reality that life tends to get in the way of long-term investing, it's important to figure out a way to get started as early as possible. After all, the true power of compound growth takes time to manifest, and the sooner you get started, the better it can work for you. The most straightforward way to get started is to make your retirement account contributions automatic -- have them deducted straight from your paycheck. Fill out whatever forms and paperwork your employer requires, and start contributing to your 401(k), 403(b), TSP, or other employer-sponsored retirement plan.

This strategy means the money in question is gently diverted into funding your future before you see it -- and before you have the opportunity to choose to spend it on some more-immediate priority. That's an incredibly powerful, yet simple, tool. You only have to bring your willpower to bear once (hopefully, with occasional encores to boost your contribution level) and you've gotten a jump start on preparing for your future. In addition, once you adjust to it, you'll likely stop noticing the 'missing' money in your everyday life. That is, until you check your retirement account balance in a few years and recognize just how far you've come thanks to that one simple move.

The table below shows just how much that automatically invested money can grow over time, depending on how many years you invest and the amount of money you sock away each month. These figures assume an 8% annualized rate of return, which is fairly reasonable considering the long-term average growth rate of the stock market. (This, in turn, includes the assumption that your portfolio is heavily weighted toward stocks and stock funds.)

Table by the author.

Over the course of a career, consistently contribution even $300 a month -- around $10 a day -- to your retirement accounts can get you to millionaire status. And that $1,500 a month at the top of the table? While it may seem like an improbably large sum to a person just getting started in investing, it's still below the typical limit of $19,500 per year that someone under 50 can contribute to their employer-sponsored plan. 

Get started now -- it's your best shot

By contrast, check out what happens the further you get toward the right-hand side of that table. The less time you give your investments to work for you, the less they will be able to grow on your behalf. The takeaway here is that while getting rich can be simple in principle, taking that key step to sign up to invest in a 401(k) or other tax-advantaged retirement account is something you need to do sooner rather than later, to give it the best chance to work for you. Getting started now is the simplest path toward a financially comfortable future.