Get Richer Every Month

Finance
Get Richer Every Month

You need to get richer every month. Seriously this is not some cat poster advise, if you are reading this it is more like a command. Getting richer every month and growing your wealth is a lifestyle and a mindset. You should track your net worth and it should be growing on a monthly basis, in some cases even daily. Once this becomes a habit it is unbelievably satisfying and gratifying all in one.

So, where are we?

Well, I live in South Africa and people are doing quite well at reducing their household debt in relation to their income. Which is less than a third of what it is in Norway.

The problem is the cost of servicing debt in South Africa is quite high. What does this mean? Well at the time of writing the South African prime rate is 10.25% while inflation is around 4.6% (it has slowed down nicely in the second half of 2017). Compare this to the US where the prime rate is 3.75% at the time of writing and only increased moderately over the past year. Inflation is standing at a low 0.82%, man would we love this in South Africa. South Africa’s inflation is therefore a ratio of 45% of its prime rate while in the US it is 22%. What this basically tells us is that it should be easier to save and pay off your debt in the US compared to South Africa as relatively low risk investments should be outgrowing inflation easier. Having debt in the US is also far cheaper as rates are only recovering now after the last recession. Naturally South Africans would then want less debt due to the cost of servicing this debt.

In South Africa, a high percentage of people are living paycheck to paycheck, especially compared to the world average. Although circumstances, cultures and access to finance differs dramatically when simply compared the world average.

A recent report has however shown that the situation is very similar in the US, no matter at which income scale, the majority of workers are living hand to mouth. With such huge differences between South Africa and the US in terms of education, equality, GDP per capita and the above mentioned economic indicators how can this be?

The only answer I can think of is that human behaviour is actually quite consistent and predictable.

Don’t be a statistic rather be rich

There are many good resources on how to grow your net worth on a periodic basis. All of these are relevant and good to apply in your life and personal finances. However, I believe that becoming richer every month (read: growing net worth) should become a habit formed by your mindset and lifestyle. This is where a bit of discipline comes in but luckily it is not difficult.

First thing is to know what you earn after “necessary deductions”. My employer already deducts income tax, my retirement fund contribution (401k in the US) and my medical aid (medical insurance) contribution before I get my salary. This is what I term as “necessary deductions” as they can/should not be avoided, don’t even think of these deductions as spendable income. If you do only this and pay all your bills you should already be richer as your assets have already increased through your retirement contribution, but no high five’s just yet.

Secondly, pay all your bills especially instalments on debt. Again, great work, if you did not acquire any more debt this month you are richer as your liabilities have decreased which is positive for your net worth.

Thirdly, save something. Everything you save now is like a bonus as it goes straight into the plus asset column of your net worth. Naturally you would like to invest that savings to grow even further, but that is a topic for another time.

Congratulations you have just become richer and grew your financial wealth this month.

Be careful however to not waste this effort next month by increasing your debt or skipping bills. That is the way you get poorer every month, not something I would like to write about.

The key is to maintain this mindset and lifestyle so that it becomes a habit. You will become richer every month and if you start doing year-on-year comparisons you will start wondering how you were so poor 2 years ago. This feels even better when your savings start growing or provide passive income on a monthly basis. It is very satisfying to see this growth over time and even more so every month when receiving your paycheck after necessary deductions and paying the bills thinking: “I am richer than what I was last month…”

Always grow your wealth for tomorrow while being content with your wealth today.

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