The Wealth Secrets Of The Boomers (And How Millennials Can Benefit)
It has been widely publicised that the Baby Boomers are the wealthiest generation in history.
Born just after the war, their stratospheric increase in wealth has been largely attributed to rising property prices and a surging stock market, but is it really that simple?
Yes – there is no doubt that the boomers were helped along by their burgeoning property prices and stock market growth, but I don’t think that this really tells the whole story.
If you don’t own a property or have any money in the market, then these things are of no benefit to you. The conclusion is that the boomers must have had at least some wealth before the market went crazy.
You see, the boomers have some secrets, wealth secrets, that helped them to become wealthy in the first place.
In fact, these secrets are not really secrets at all, quite the opposite in fact. They are just sensible ways of managing your money that will deliver Financial Freedom in the long run.
The boomers, for the most part, did not ‘get rich quick’. In fact they got rich rather slowly, using tried and tested money management skills that have stood the test of time.
There was no Bitcoin, no tech start-ups, no currency trading. Just good old fashioned finance rules that have always worked, applied consistently over many years.
So what are these non-secrets then? How did the boomers become so wealthy. Well, here are 5 ideas:
1 – They Lived Below Their Means
This is possibly the single biggest factor in anyone’s financial success.
If you can create a life where you earn more than you spend, then this means you are able to save. Saving is the only way to achieve complete Financial Independence.
Boomers were generally brought up in a fairly frugal way – because they had to be. There were no iPhones or $4 lattes to spend all of their money on, the focus was really on just making ends meet.
As the boomers got older, their incomes increased as the economy improved, but their spending habits didn’t generally change as much. Even though they now had much larger incomes, they tended to always live below their means.
This allowed them to save money, which then benefitted from all of that wonderful growth in the stock market boom.
Most millennials will experience pay-rises over their careers (rising income), but in the modern, consumerist world there are a thousand and one things you can spend that new-found income on. Eating out, gadgets, apps – the list goes on.
There is so much temptation to spend more than you earn that a lot of people do.
This is called lifestyle inflation.
Lifestyle inflation is where your lifestyle increases as your income increase, therefore eating up some or all of your additional income.
If you want to be Financially Independent, you need to keep lifestyle inflation under control – at least for the most part.
Now I am not saying that if you earn a bonus at work or get a raise that you shouldn’t enjoy some of that money. That wouldn’t be any fun at all.
If you want to achieve Financial Independence though, then you must stop yourself from enjoying all of it.
My preferred way to achieve this is the spend half, save half method.
This means that if you earn a bonus or get a raise at work, then you spend half of the extra cash and save the other half.
This means if your salary goes up by $100 a month, you can spend an additional $50 a month and then save the other $50.
If you get a $2,000 bonus (lucky you), then by all means spend $1,000 on a nice trip, but save the other $1,000.
Now some people take this concept further than others and in fact, you can adapt it to suit your budget and also how quickly you want to achieve financial independence.
If you really hate your work, then you might want to save 100% of all bonuses and extra income so that you can reach financial independence as soon as possible. You should probably also look for a new job (no one should have to do work that they hate).
If your budget is really tight or you really love what you do and want to enjoy life today, you could spend 70% and save 30%.
The key point is that you start saving something and preferably try to increase your savings rate over time. Which brings my nicely onto:
2 – They Had a High Savings Rate
Your savings rate is the percentage of your total income that you save. The higher your savings rate, the faster you will achieve Financial Independence.
The overall average savings rate in most western economies is between 1-7%, which is nowhere near enough if you want to reach Financial Independence this century!
You should be aiming for a savings rate of at least 10% to start with and over time, you should aim to bring your savings rate up to around 50% of your total income.
This takes a lot of time and can be done in stages. Try adding 1% every 3 months for example.
My own savings rate now hovers around 35% which I am really happy with (it was less than 10% only a couple of years ago) and I am constantly looking for ways to improve my savings rate so that I can reach the hallowed 50% figure.
3 – They Invested Wisely
The boomers who I work with in my Financial Planning business were mostly in the ‘get rich slowly’ game. They did not invest in the latest ‘fad’ only to get their fingers burned a few months later when everything inevitably came crashing down.
Nowadays, there are stories everywhere about people who ‘got rich quick’, but these stories often hide a couple of things:
- In many case, they got rich quick because of luck. Many people who invested in Bitcoin for example jumped on the bandwagon when everyone else did and got lucky … for a while! These same people probably didn’t have a clue when to sell and so lost everything (and perhaps more) in the crash.
- If luck was not involved then it must have been good judgement. Good judgement generally takes 1000’s of hours of study and practice to get right (and even then there are no certainties). The few people who got rich through Bitcoin, who were not just lucky, probably spent years studying Bitcoin and the crypto currency market before they ever placed their first trade. When you see them on the news, it all sounds so easy, but there is often a lot of blood, sweat and tears (and mistakes) hidden beneath the surface.
No, the boomers did not invest in the latest fad or get rich scheme.
They invested in what has always worked, rather than what is working now.
What has always worked is a globally diversified stock market portfolio and property investments.
Almost every client I work with who has a seven (or eight) figure portfolio has generated most of their wealth investing in property or the stock market or a combination of both.
It has been reported that some Millennials are sceptical of the investment market, but this shouldn’t be the case.
Like any industry, the investment world has some bad eggs and some of them probably were to blame for the 2008 crisis, but this doesn’t mean that you shouldn’t invest. That would just be cutting your nose off to spite your face!
4 – They Had Patience
Investing is generally a waiting game. For most people who are wealthy, investing was not about flashing screens or shouting down a phone. It was not about buy, buy, buy and sell, sell, sell.
It was, quite simply, about buying good quality investments at a reasonable price and then … waiting.
Not very exciting, but incredibly effective.
5 - They held their nerve
Investing can sometimes be a little bit scary. Sometimes the markets fall and you lose money.
So long as you have a well diversified portfolio, these losses are always temporary. These losses also provide a great opportunity to buy more investments.
Think about it, if you were planning to buy a new TV for $500 and then the following day you saw it on sale for $300 – do you think you might buy it there and then – I certainly would!
In fact, people have been so desparate to get their hands on a discounted TV in the UK that they are willing to stampede on each other to get one!
Yet when the stock market is on sale, people seem to stampede away from the discounts.
This is complete madness. When the stock market falls it provides the opportunity to buy some of the worlds best companies at a discount.
As Warren Buffet always says “be greedy when others are fearful and fearful when others are greedy”.
So there we have it!
5 wealth secrets of the boomers (that are not that secret at all) that Millennials can use to achieve Financial Independence.
If you are hoping to make a start on your own journey to Financial Freedom, you need a budget. You can download my budget planner here.