My Secret Formula to Get Rich

I have a formula to get rich. However, the moment I post it here I guess it won’t be a secret anymore.

That’s a good thing because my secret formula to get rich should be widely known and practiced.

Now, I have written more broadly about this topic in this article here, but I want to really specifically double down and look at the details and the actual formula I use in this article now.

In this short article we will look at my exact formula to get rich, break it down into parts and then examine how to put it all together in the real world. So, here goes – my secret formula to get rich.

What is My Formula?

My secret formula to get rich is this:  E x IR x ROI x T

Or in long hand:

Earnings x Investment Rate x Return On Investment x Time

We will unpack this formula in the rest of the article. It’s not complicated, but it does need explanation.

So, the next four paragraphs will be about 1). Earnings 2). Investment Rate 3). Return On Investment and 4). Time.

My secret formula to get rich places equal weight on all four of these elements.

Earnings

So many finance writers bang on about how what you earn is not as important as your savings rate. I think this is complete nonsense – this only works consistently on a spreadsheet and not in real life.

Yes, the FIRE community has examples of when it works, but these people are exceptions and outliers, not normal people like you and me.

We must earn more. No excuses.

So, I say that earning more it critical.  There is literally no ceiling on what you can earn, and we need to leverage this.

The more you earn, the bigger potential you have to get rich and stay rich. No excuses.

Additionally, it’s important to ensure the purpose of earning more is to invest more into passive income investments – not to spend more.

These extra earnings have a single purpose – to buy future passive income streams.

Investment Rate

I hear a lot about savings rate, but it dawned on me the other day that the purpose of savings is normally for delayed spending. This is NOT really true savings rate. So, I’m calling this section Investment Rate.

Investment rate is the percentage of money you set aside from every dollar that comes your way, for the express purpose of investing into incoming-producing assets that you never sell (read that statement again).

The more we earn, the higher percentage we can set aside to invest.  If I set aside $20 from every $100 I earn, then my investing rate is therefore 20%. 

I personally have a mystical minimum of 23.5% of every dollar that comes my way that gets invested immediately into income-producing assets. Without fail.  Why 23.5% you ask? Well that’s the topic for another article sometime (hint – the tilt of the earth).

Return On Investment

Return on investment (ROI) in simple terms is the profit you realise from your investment (both capital gains AND earnings) minus the cost of owning the investment (fees, outgoings, taxes etc).  Most people conveniently forget to include the costs of owning an investment in their calculations. I encourage you to be brutally honest in calculating your real ROI when comparing your investments.

Personally, I have found investments like physical real estate to be utterly riddled with repetitive and hidden expenses (and headaches) – that’s why I prefer REITS for real estate. Same goes with buying and storing physical gold – give me a physical gold ETF any day of the week instead. Costs eat into your returns. But, each to their own.

Whichever investment you choose, know your ROI down to the last dollar. If you are investing in a small business, then know the ROI numbers. Same goes for investing in simple index funds, shares or bonds. Know the numbers. Know your ROI.  If the ROI is consistently low or bad, then you don’t have an investment. Do your research and be brutally honest with yourself about the ROI of each type of investment.

Time

Yawn. Yes, I know, it’s boring. Guess what? Stop being childish – wealth favours time. You have to wait, wash and repeat.

Ever heard of investment timeframes like short term, medium term and long term?  Yes?

Well, the following is how we need to rethink these timeframes in our mind if we want to be rich: –

Short Term: 10 years minimum

Medium Term: My lifetime

Long Term: Multi-generational horizon (forever)

Automating the Secret Formula to Get Rich

Very simply, it comes down to this: –

Earn as much as you can and keep as much of those earnings as you can, to specifically buy income-producing assets forever. Automate as much of this process as you can.

Do this in a way that you enjoy life, build a family, embrace friendships, continually build skills and knowledge, contribute to society and honour your health. The secret formula to get rich does not involve staring at a budget spreadsheet for hours and becoming a thoroughly boring git that everyone dislikes. Much of what we have spoken of can be automated – like so:

• Automate a small online business.
• Automate banking systems to skim a generous percentage of business profits and your wages into an investment holding account.
• Automate the purchase of income-producing assets e.g. auto-investing into Dividend Growth ETFs or Corporate Bond Funds or REITS etc.
• Automate the reinvestment of income from those investments back into themselves.

The less you personally get involved with this, the more successful it will be. Automate it. Don’t fiddle. Go about enjoying your life.

One day, (far sooner than you think) your income from your investments will cover all your expenses and you can start spending some of this natural investment income (no more than 80%). Paid work will be a choice not a commitment. You will be your version of rich. You’ll have enough.

And that is my secret formula to get rich. I know it works because I’ve done it and am continuing to do it.

Cheers

Hugh Walker