Hi, I'm Erica Douglass. I sold my business and "temporarily retired" at age 26. I write here about investing, setting goals, and entrepreneurship. Most importantly, I share lessons I have learned that can help you on your quest for financial freedom!
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Ask Erica: Why Become Rich?
You — my readers — have been asking me some fabulous questions for a while now. Today starts the first in what I expect will be a fairly regular series I’m simply going to call “Ask Erica.” The first question in this series is surely on some of your minds — not about me, but about you. The question is: Why should you decide to become rich?
Three Steps To Help You Define “Rich”
Let’s take a few steps back first. I firmly believe that before you become rich, you have to decide to become rich. There are exceptions — lottery winners and inheritances being two notable ones — but those who do not know how to budget, save, and invest quickly find themselves back in the hole financially. So, in order to truly become rich and stay that way, you must first decide to become rich.
The second step involves figuring out where you are now financially. Rich people focus on net worth, not income, as an indicator of how financially successful they are. Net worth is simply your assets (house; car; belongings; investments; retirement accounts) minus your liabilities (mortgage; car payment; credit card or other debt.) It may take a bit of time to calculate your net worth, but it is worth your time to do so. Don’t be surprised if your net worth is actually negative — that’s not unusual, particularly if you are young.
Finally, once you know your current net worth, you can set specific goals for your net worth — as well as your income — in the future. For instance, one of my goals is to have $1 million in passive income a year by the time I am 30. “Passive income” can be defined in various ways. Investments that pay dividends or return income, royalties, and investment real estate properties are a few passive income vehicles.
I encourage you to set bigger goals than you immediately think you can achieve. If you set big goals and have a positive attitude about reaching them, you will find that doors open much more quickly for you.
Those are the basics of how to get rich. But why get rich?
You’ve Set Your Goals - Now What?
Up until last year, I figured my primary financial goal would just be to accumulate enough capital so that I could reach my goal of $1 million per year in passive income. $10 million invested at 10% interest is $1 million per year, so I used that as a nice round number to shoot for as my net worth goal.
It was actually a TV show that caused me to rethink this entire strategy — or, rather, set it as an initial goal and decide that I wanted to push it much farther. That TV show was a rebroadcast of Oprah’s Building a Dream: The Oprah Winfrey Leadership Academy. The story — and seeing the girls in South Africa with hope in their eyes, finally away from the devastating surroundings they grew up in — moved me to tears. I cried and cried, realizing the plight of these young girls, who were obviously intelligent, who were really no different from you and me other than the horrific circumstances they had grown up in.
Oprah spent $40 million to build those girls a school where they could live safely, be taught by top teachers, and have a real chance to change the world. With her money, she is leaving a legacy that will have a lasting impact on the world. She has figured out that her money and voice can be used as a platform to transform people’s lives. And watching her show (as I do on a regular basis), you can tell that she takes true joy in making others’ dreams come true.
The True Power of Becoming Rich - Help Alleviate Pain and Suffering
There is so much suffering in the world, and much of it is needless. You and I have the power to change lives. Why are we insistent on “playing it small” and earning “just enough” for ourselves?
I realized recently how much more meaning my life would have if I refused to “play it small” and instead embraced HUGE riches. It’s not about me. Sure, I will happily live in a nice house and drive a decent car. But what it comes down to, to me, is that becoming rich is not about me. If I “played it small”, had a net worth of $10 million, and left a few million to charity in my will, that might be interesting. But what if I could become a billionaire? What opportunities to change the world would come my way then? What sort of legacy could I live? How many lives could I save? How many people could I rescue from poverty?
Deciding What Your Legacy Will be
What would you do if you had the chance to “play it big” and donate millions to a cause of your choice? Would you start a school like Oprah did? Would you teach others how to grow crops, how to start businesses, or give them technology? Would you invest money into curing a disease? How could you make the lives of millions of people better?
Of course, I don’t mean to imply that making others’ lives better takes millions of dollars. But the point does hold — in general, the more money you have and are able to give, the higher impact you can make in the world. Being rich isn’t about greed and selfishness and spoiling yourself rotten — just like retirement isn’t about sipping pina coladas all day. (I imagine both of those would get boring pretty quickly!)
Instead, consider financial freedom and becoming rich as one way to leave a legacy that will always be remembered in the world — by helping out others in need and making big changes. Those who are less fortunate and who benefit from your philanthropy will always remember you — because you chose to play it big.
How do you plan to “play it big”? Please post your thoughts and ideas in the comments.
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8 Responses to “Ask Erica: Why Become Rich?”
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Erica, it’s really great to finally see someone who thinks money is a good thing. I find it frustrating to be surrounded by people who think money is evil and it’s wrong to want more than the bare minimum you need to survive.
Someone recently told me I was too greedy and I should think more about all the starving people in the world. I said “I can’t help them if I’m poor!”
However, I get stuck on the “how.” I don’t know how to quickly get to even your “play it small” level of $10 million. Given a few decades, sure, no problem. But I’m always looking for ways to speed up the process.
Great post Erica. Too many people just focus on raw income instead of creating passive income. That is what truly offers you freedom. It’s also a mindset. It’s important to realign your efforts on maximize the value of your time versus just trading time for money as in a “job” mindset.
What’s the big deal with being remembered? Reducing the suffering of others is a fine and noble act, but what’s the value in being remembered?
The politically correct reply would perhaps be “to inspire others to do the same thing”. Still I suspect that the real motivation behind this would rather be the feeling of being the savior. No problem. Whatever makes you happy, but I am surprised you think “it’s not about you”. Because it really is.
@Hunter: “How” is a great question. I went over some brief basics in this article, but I will go into a lot more detail in a future blog post. Thank you for the question — it’s a great one!
@Marty: Agreed 100%!
@Espen: Seeing the looks on people’s faces when I’ve helped them is what motivates me to go on. For instance, one of the things that keeps me motivated to blog is the steady stream of emails I get from happy subscribers. One of the things I enjoyed most about my web hosting company was knowing that people were satisfied with us. It is really about knowing I’ve made a difference. I realize everyone may be a bit different in this regard, but I don’t consider this to be selfish.
Thank you all for your comments!
I too find satisfaction in seeing the happy reaction when I help people. If I donate a lot of money to help people in need, I can go to the news media and tell them what I’ve done and what a great person I am in doing so. Or I can just donate the money or hire people to run the project for me, and not letting the world ever know it was my money that made it possible, not even the people I helped. On the other hand I find satisfaction in knowing that needing people were helped and that the rest know what great person I am. Just like Oprah.
Yep, the problem is not that we think too big and fail to achieve it…but rather we think too small and achieve it.
Like you Erica, I’m into that passive income thing. It didn’t take me too long to realize wage slavery was not where is was at. Besides you tend to get into the flow more easily when you know your efforts are going into your pocket and not your employer’s:)
Personally,I started creating high net worth buying raw land, especially waterfront or commercial. You can get good deals and the taxes (carrying costs) are much lower. Unlike houses, people just have to like your location to buy when you sell.
Now I am creating niche websites on the things that interest me, such as aquaculture, bioremediation, and green living and creating income through affiliate programs and Adsense.
You made another important point Erica about the giving. I’ve always felt that my blessings should overflow into the lives of others. I’m not interested in monument building but I also don’t want my life to be little more than footprints in the sand. The interesting thing is the more I give, the more I seem to receive. Stew
Another post that I think breaks down an idea ppl float around without really thinking about it. I started a blog awhile back that focussed on redefining success, which so many ppl start to do around their late 30s or early 40s, when they have either said “what happened to my plan” or “I reached it, but now what?”
I agree that philanthropy has, for me, become the major motivator behind wanting wealth. But my definition of “wealth” has expanded to include a lot more than money. Like freedom, time and meaningful relationship - these are often sacrificed in the acquisition of wealth, with this assumption that they will naturally follow once a certain level of wealth has occurred. I absolutely MUST be fascinated by what I am doing all day, and I realize I am willing to sacrifice money if it makes me richer in those other areas. So weirdly I actually define myself as rich already, in that I wake up when I want, take care of my clients at my own speed, think about where I want to have lunch with my partner who I adore and am so greatful I get to spend all day with everyday, and think about where we want to travel next. I think there’s nothing wrong with saying I will sacrifice this amount of time to reach this goal. It just didn’t work for me personally, and yet in another way I’m rich in a way I never dreamed of already. For philanthropy to make up for not having tons of money I started an investment club and then philanthropy blog where I know I motiviated a group of others so that donations inspired by my own fumblings through figuring out financial literacy and then philanthropy resulted in multiple amount being donated than I had to give myself. In short, a lot of this can be done outside the box. But thanks Ericka again for another very simple but illuminaing post.
Stew and Enzo: Thank you both for the comments! They are both quite insightful and definitely add to the discussion.
-Erica