How To Become Rich

We all know that we should not spend all that we earn. We need to save some money. Whether it is for a rainy day, or the sheer pleasure of watching your bank account grow, we all agree that it is not wise to spend every single cent.

However, not spending all our money is not a sure fire way to get rich. We need to do more than just save. A great way to learn to get rich is to learn from the rich themselves.

So how do the rich become rich, and stay rich?

Invest Your Surplus

We all need money to survive, but only up to a certain point. Once we have enough for necessities, the rest are surplus where we can save and invest. It is important to save and invest; saving alone will not get us rich. We need to be aware of the dangerous destroyer of wealth — inflation.

You can scour for the best interest rates for a fixed deposit account at a local bank, and the best you can probably get at a special promotion is around 1.3% interest (most accounts are way below 1% in today’s market). Singapore’s inflation rate is currently hovering around 3.7%, and simple math will show that one is losing money by keeping it in the bank.

Investing a portion of your surplus income will put you on the journey to become rich. My fellow writer, Sudhan P., had earlier shown, by investing about $36 a day, it is possible for us to reach the dream of becoming a millionaire one day. We don’t necessarily have to invest that much, we can also start by investing $100 or $200 a month.

The Idea of Compounding

This is where the magic begins, the money you earn through your initial investments can now begin to earn additional wealth for you. With an initial capital of just S$1,000 and without any added funds, a return of 12% a year would look like this – S$112 in the first year, S$113.44 in the second year and so forth. In fact, even after compounding for 20 years at 12% per year, your “small” capital of S$1,000 would have become S$9,646. This isn’t even counting any additional savings and investments you would have made in subsequent years.

Your money is now earning money.

Let’s Put It In Action

To help you get started, we at The Motley Fool Singapore have created an easy guide for you in your quest to becoming a better investor. The guide, titled 10 Steps to Making a Million Singapore Dollars in the Marketis FREEClick here now for your copy!

Remember, everyone has to start somewhere, but the most important thing is to get started. The journey of a thousand miles starts with a single step.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.