If you have no idea how to go from being in debt to actually having money, this starter video is for you. I’ll explain in simple terms how you can go from owing money, to starting to create a strong financial base for yourself.
A lot of people have never been shown how people actually move up the financial ladder, so I figured I’d do a video on the main stages people usually go through to start getting rich.
Note: There are multiple different ways people can get rich so you may choose a different path, but this is a good starting point if you have no clue.
For the people that are willing to do the work and willing to learn about how to invest, and willing to learn how to increase their income and willing to do all that sort of stuff, and stick to it long-term, you will get rich.
Good day, there. Ray Corcoran, here. In this video, we’re going to give you an introduction to how do you go from being in a lot of debt, all the way up to being filthy rich. And of course, I’m not a financial advisor or accountant or CPA or anything like that. So this is just for entertainment purposes only. If you want to subscribe to the channel, feel free to. We talk about making money, investing money and saving money. If you like the video, please give it a like. I would really appreciate it. It helps to actually push the video out to more people. So with all the uncertainty in the world right now, a lot of people are looking towards how can I build wealth and protect myself, and give security and safety and a good quality of life for themselves and their family moving into the future?
I’m sure you’ve seen all the articles about, a really high percentage of people don’t even have $500 for an emergency. Inflation is potentially about to start going crazy, with all the printing of money. There’s all sorts of uncertainty in the world. And in my opinion, one of the best ways to hedge against this is to build your own personal wealth so you’re less affected by it, and also you’re able to help the people around you if the world gets even crazier.
So what we’ll be going through in this video is a step-by-step process for you to go from not having much money to having a lot of money. And this does take a lot of time to do. There’s no ways around it. But at the same time, it also will happen probably quicker than you think. Early on, your wealth building journey will feel very, very slow. What I found is, you do get a bit of momentum, and the compound effect starts to take over. Say, your first hundred thousand might feel like it takes forever to get to. And the second hundred thousand takes a lot less. And then eventually, it starts happening even faster and faster.
And I did that with my own wealth. I measured how many months it took me to get to a hundred grand, then 200 grand, and 300 grand, and beyond. Now I’ve got a net worth of over seven figures. And compared to all these YouTube gurus, it’s probably not that much. But it’s definitely a long way from where I started. And I’m going to share some of the lessons and some of the things that you can do in this video.
So the first step is actually getting your head right. So a lot of people just want to skip a whole bunch of steps and get straight into what stock to pick or what crypto to buy. And that’s totally the wrong way to approach it. You want to get back to the very, very beginning. I was always taught mindset before skillset. So you need to understand the mental approach you have before you learn the specifics of what to click or what stock to buy or what website or what app and all that in detail stuff. You want to start high level and work your way down into the detail, for best results. If you don’t understand these things, you’re going to get halfway through and get de-motivated when things inevitably go wrong, or you have deals that don’t go well, investments that don’t pan out. One is, it’s going to take time. By working hard at it. You can shrink that time. But it does take time, depending on where you’re starting from.
The second thing is, you can make a lot of money almost regardless of what your starting point is. Obviously, if you’re starting from a very disadvantaged background, you’re going to be starting from further back. But that’s not to say that you can’t leapfrog a whole bunch of people over time if you stay committed and keep working at it. For the people that are willing to do the work, and willing to learn about how to invest and willing to learn how to increase their income and willing to do all that stuff and stick to it long term, you will get rich. It’s not even a maybe thing. It will happen. It’s just a matter of time. And you can actually look at compound interest calculators and type in some sample numbers. And you’ll see, even if you start really, really slow, building up your wealth slowly, eventually it will really take off as you get older. And your goal is really just to shorten that curve and make that happen a lot sooner.
But some of the things I just really just wanted to mention before you get started is really, it will take a while. It will be hard. You will have moments where you’re not very motivated. It probably won’t be fun a lot of the time, especially early on, you’re paying off debt or you’re trying to save up some money early on with a low income. It’s not going to be fun. I think just accept that that’s the way it’s going to be. And you may need to lay low for a bit. When you go into it knowing that, it won’t feel as disheartening when the inevitable something pops up, or you get a surprise bill or whatever. That’s all part of the journey. And over time, you will eventually get past that. And you won’t even think about it.
I did a video on how I paid off a large amount of debt and I’ll put a link in the description. But at the time I couldn’t think about anything but that debt. Ever since then, I don’t think about it at all. So that’s something to think about as you go through your journey. You’ll get past certain phases of this process. And you won’t think about that anymore, which is a good thing.
Now that we’ve got that out of the way. The second part is really just an audit of all your expenses. We need to go through all your expenses, one by one, and cut out anything that you can cut out. Everyone has a different approach on how to do this. For me, my approach was cold turkey, ruthless, and just cut everything that I could possibly cut. That works the best. Some people may not want to do that. You need to understand that if you don’t do that, it’s just going to be slower for you. And if you’re okay with that, that’s fine. So go through all your expenses, one by one, go through your credit card statements, all that stuff, and just see where the money’s going, and just highlight stuff that you could cut out.
The next part is to be ruthless about letting money go out the door and just become really, really tight, essentially. There’s a whole bunch of other factors like social events that you need to go to, maintaining relationships with people and all that sort of stuff. So you got to use your common sense here. But start to get creative. Invite people over to your house. Maybe go out to coffee instead of going out to lunch. Little adjustments there can help you keep your social relationships without you blowing out in terms of your spend.
The third step is, once we’ve created a little bit of free cash flow now, if you have any debt, so if you haven’t got debt, that’s fine, you can move to the next step. But if you do have debt, you want to go through all your debts and pay them all down. Now there’s a couple of different approaches. There’s, I guess, the financially best approach, which is starting with the highest interest debt, and then work your way down to any other debts that have lower interest rates. Paying off something that has a 10% interest rate is the exact same thing, mathematically, as you having an investment that makes 10% guaranteed. If you can start paying off your debts as quickly as possible, that is ideal.
There are other people, like Dave Ramsey or whoever, they talk about paying off your debts from smallest debt to biggest debt. They do that because they believe that there’s a psychological advantage of paying off a small debt and getting momentum. I don’t personally do it because I know, mathematically, it would actually be faster for me to do it from highest percentage of debt down to lowest. But you need to do what works for you. So if you find that makes you pay it off quicker, definitely do that.
In terms of student debt, obviously this varies quite a lot for people. Some people have maybe $20,000 student debt, other people have about $200,000 student debt. So you need to make a bit of a decision. For me, I didn’t have a priority to pay it off because in Australia, and many countries, the interest rate is either nothing or very low. It doesn’t really make a lot of sense to pay it off early. I ended up changing my mind after a while. I just wanted to pay the debt off. On a spreadsheet, I don’t know if this would have been the dollar for dollar best option. But for me, that peace of mind was amazing. And two, it increased my income because in Australia, at least, they take a chunk of your salary before it comes to you to pay that debt off. Once I’d actually paid that debt off, I was actually getting my full salary, which was a decent increase. I didn’t realise how much was actually being taken out of my salary to pay my university debt. So I found that really, really powerful. And I would definitely do that again.
If you do have a debt that’s huge, like a hundred thousand dollars plus, it may not make sense for you to pay it off straight away. You might chip away at it. But you got to ask, what is the best usage of that money? If you pay off that debt and it has an interest rate of say 2%, you might be able allocate that money into an investment that could do 5% or 8%. And you’re going to make a lot more money doing that versus paying off your debt. So you need to make a bit of a decision around that. And this stage is typically probably going to feel the slowest out of any of the stages, paying off the debt, because you’re working probably really hard. You’re putting all your money away to pay the debt off, but your lifestyle isn’t improving or anything like that. So this can probably feel like the hardest part. Trust me, it does get a lot easier after this phase.
So step number four is building up your emergency fund. This is all about having that peace of mind. You paid all your debts off, or the majority of your debts off, and maybe you get a little bit of student loan debt or whatever. But debt wise, you’ve got barely anything there now. The next part is to build up a cash buffer and have some money for emergencies and rainy day money. Now, it could either be six months, three months. It could be 12 months. Could be more. It probably really depends on how much money you’re bringing in, what your outgoings are like, how easy is it for you to make money, and how much peace of mind do you want. For some people, they want a big buffer. So it’s like, no matter what happens, they’re going to be pretty safe. Other people don’t mind flying a little bit closer to the sun and having a little bit of a buffer, but they would rather have more money working for them. It’s just a bit more risk for them.
I used to keep a much higher cash buffer, like 12 months plus. These days personally, I keep around maybe three to six months. And I’d rather have that money working for me in investing. I have a business, so if I really, really needed to generate income quickly, I probably could. And I trust that I’d be able to do that. That’s why I have it structured like that. But for most people, I’d really recommend keeping more buffer than you think you need. Because as you saw in 2020, everything can get pretty crazy. People can lose jobs pretty fast, all your bills coming in. Things can change quite quickly. That was a once in maybe a decade or a century event, who knows? But you need to keep that in mind. If that stuff happens, having that buffer is the best thing that you can have.
Step number five is making your first investments. So far, you’re doing pretty well. You’ve got your head right. You’ve paid off your debts. You’ve built up your emergency funds. And now you’ve got your cash buffer. No matter what happens, you’ve got a bit just sitting there. Now, the next thing is really starting to make your first investments. The way that I see investment, and I guess this is the way that investment is. It’s like a graph. I’ll throw something up on the screen now. But basically the way it works is, you start off with low return and low risk. And then you move up on a curve towards high return, but also higher risk. My opinion is, when you’re starting out investing, you see all these people online talking about getting into crypto and picking individual stocks and all that stuff, I personally think that is a ridiculous idea. I own individual stocks and I have crypto and I am a bullish on those assets. But I wouldn’t start there.
If you want to start there, great. But you need to understand that you’re putting the early part of your portfolio at risk. It’s a high risk small portfolio. So you could lose everything or you could lose a high chunk of it early on. I would rather have a really strong, reliable base and then build up on top of that, than just jump straight into things that may or may not work out. I’m sure you’re going to hear of people that, well, I invested in something and it went really well and I made heaps of money. They’re the exception, not the rule. Build a strong base with safe, maybe even boring stuff, that gets you maybe 5, 6, 7, 8, 9, 10% return. Get some momentum with that. And then I would move into other alternative investments.
Another thing as well to mention is, I know in the States, some people like to put some money into their retirement and they have Roth IRAs and that sort of stuff. In Australia, we have Superannuation. Some people, for tax reasons, do like to max out those things and put in as much money as possible into those because they can be very tax effective. Speak to your accountant or CPA about that. That might be a great option for you. But generally, at this point, you have a few different options. You could probably get an investment property and start saving up a deposit for a small house, or maybe even an apartment. Personally, I know that where I live, apartments aren’t as good investments, generally, as houses. What you want to do is, you can start looking at that and start saving up for your first place. Maybe a small, modest place.
Another option as well that is really, really good at this point is ETFs. So Exchange Traded Funds. Now, I’ve done another video on this. They’re a lot safer than picking individual stocks because an ETF, in short, it’s like investing in a bucket of companies rather than one individual company that might go up and down quite dramatically. An ETF will allow you to buy all the top 300 companies in Australia or the top 500 companies in America. And the chances of all of them going down at the same time is much less likely than one company going down at any point in time. So you generally get lower returns. You might get 5, 6, 7, 8, 9, 10% returns, but you get it with a higher degree of certainty, generally, compared to an individual stock, which might go crazy up. But it also might go crazy down.
One thing that I did in 2017 was, I signed up with a service in Australia called the Stockspot, which is a robo-advisor service. They basically invest in ETFs and a few different conservative investments, I guess you would say. And that’s made me about 9% every year since 2017. It’s been several years of pretty consistent, good performance. And I joined them because I didn’t want to be an expert stock picker. Another thing that you could invest in at this point as well is your own business, if you have one or starting a business. You could be investing in staff, so people. You could be investing in processes. You could be investing in software. There’s a whole bunch of things that you could be investing in at this point. And you could take that money and invest it and start to multiply it. You might spend a few thousand dollars on ads and make back triple that or 5X that, or that sort of thing.
Step number six is optional because you can make a lot of money at the last step just by basic investment. And just compounding that over time. That will make you millions of dollars just by itself, and you may never need to do much more beyond that. Just be consistent. That said, though, there are other options. Obviously, with property, you can do stuff like buying a property and renovating. You can do property development. You can build duplexes, townhouses, all sorts of stuff that you can do that’s a bit more advanced. Generally, we don’t want to start at that level. But you can start to get much bigger returns from it. And obviously, like that graph I showed you, there is a higher return, but there is a bit more risk. So you need to make sure that you’re skilled and you know what you’re doing before getting into that.
At this point as well, you may start to get into picking individual stocks. You may know how to value a company or how to assess a market, and you can make more educated decisions around which stock to go with. At that point, it’s going to be less risky than someone that’s a newbie trying to pick a stock. So you may start to consider that. You also might be considering stuff like crypto. I have it myself. But I don’t recommend it for newbies, unless you’re just having a bit of fun, and it’s a small part of your portfolio. There’s probably no harm in that. But don’t bet the farm on that when it’s so volatile. You may end up very rich. But you may equally end up very broke. So just something to keep in mind.
So there you have it. That’s really the process of going from in debt to having a lot of money. And that’s essentially the main phases that you would want to go through in order to start building up your wealth. I’m not sure what stage you’re at at the moment. But if you go through these stages and work through it, it is a system, it is a process. It’s not magic or some mysterious thing. You just need to go through a systemized process in terms of reducing your debt, reducing your expenses, increasing your income. And you just go through that in a systematic way. And you will get there. Hope you found that useful.
If you liked the video, please give it a like. It really helps push the video out to more people. And if you want to subscribe, please feel free to as well. And if you have any questions and comments below, please let me know. And otherwise I’ll see you in the next video. Cheers.