Financial Planning, World economy & politics

It’s boring, but that doesn’t mean it’s easy. The media likes to paint a certain picture of what it means to be rich — huge mansions, expensive cars, high-powered Wall Street or tech-startup-type jobs. If you buy into that image, being rich may feel like an impossible dream.

But the truth is that most “rich” people live very normal lives. You probably wouldn’t even know they were rich if you saw them because they don’t fit the stereotype. Most rich people are a lot like you and me. They just know a secret that, while incredibly effective, isn’t very sexy.

The secret to getting rich

The secret to getting rich is as powerful as it is unexciting: live below your means.

That’s it. The bigger the difference between what you earn and what you spend, the sooner you’ll find yourself with enough money to do what you want with your life.

Now, I realize that “live below your means” may sound obvious or trite. That doesn’t make it easy. It’s actually much harder than it sounds. Many of the people you see with big houses and fancy cars are up to their eyeballs in debt, which means they’re violating this basic principle. They aren’t rich at all. They’re in debt.

The challenge is recognizing that you can’t amass real wealth if you try to keep up with such people. Real wealth comes from spending less than you earn, again and again, month after month, year after year. It’s a slow and steady process. It isn’t particularly exciting. But it is the surest way to reach your biggest financial goals.

Practical ways to live below your means

So if the key is living below your means, does that mean holding onto your ratty old futon from college rather than buying a comfy couch? That kind of thing is certainly an option. But here are some more practical steps to could consider:

  1. Ditch your big monthly bills. Switch to a low-cost cellphone company. Or get rid of cable. Technology is allowing us to do more for less, and you can take advantage.
  2. Automate saving by transferring money out of checking and into savings at the beginning of every month. This forces you to live on less.
  3. Increase your savings rate by 1% every six months. Set a calendar reminder to help you remember. You’ll hardly notice the difference, and it will really add up over time.
  4. Put 50% of all raises towards savings. You still get to increase your lifestyle, but you do it in a sustainable way.

Redefining rich

Central to all of this is redefining what it means to be rich. If you need a huge home and an expensive car to “feel” rich, then this advice won’t work for you. But if you define affluence as the ability to spend time with friends and family, to travel, to do work you love and to stop worrying about money, then living below your means is all it takes.

Real freedom is the ability to make life choices that make you happy. Frugality puts money in your pocket so you can do just that.


Weekly Market Outlook

OPEC will stick to its policy of unfettered production after members failed to agree on a new output ceiling, but ministers were united in their optimism that global oil markets are improving.

While crude prices dipped after Thursday’s meeting, there was little of the rancor that punctuated last December’s summit. The group was also able to appoint a new secretary-general — Nigeria’s Mohammed Barkindo — something it couldn’t agree on last year.

 All members see the same market fundamentals and have been “highly cooperative,” new Saudi Oil Minister Khalid Al-Falih told reporters. Iran’s Bijan Namdar Zanganeh reported “very good unity,” while his Nigerian counterpart said relations had improved “substantially” and even Venezuela — a strong supporter of freezing output — said the meeting was “very positive.”

Saudi Arabia had floated the idea of restoring a group production ceiling though members decided it wasn’t necessary at this stage. OPEC needs more time to come up with an output cap, outgoing Secretary-General Abdalla El-Badri said after the meeting, adding that it’s hard to find a target when Iranian production is rising and significant Libyan volumes are halted.

Less Animosity

“There was far less animosity between those players who did not necessarily see eye-to-eye in the last few meetings,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. “The fact that the group managed to elect a new secretary-general after so many failed attempts also points towards a small measure of cooperation.”

Barkindo, who was acting head of OPEC in 2006 and previously ran Nigerian National Petroleum Corp., will assume OPEC’s top job on Aug. 1. El-Badri, a 76-year-old Libyan who has held the role for nine years, was originally due to step down in 2012 after serving the maximum two terms, but his tenure was extended at successive meetings as members were unable to agree on a replacement.

Thursday’s summit follows a recovery in oil to almost $50 a barrel from below $30 in January after depressed prices took their toll on supplies. That suggests OPEC’s Saudi-led decision in 2014 to maintain output amid a global glut is finally paying off, with higher-cost producers cutting back.

Iranian Stance

Yet divisions within OPEC remain. While Saudi Arabia had shown willingness to mend divisions Thursday with cash-strapped members demanding a new group ceiling, Iran said it would only support individual country quotas that would be difficult to agree in a single meeting.

“I guess the political differences between arch rivals Saudi Arabia and Iran prevented a deal,” Giovanni Staunovo, an analyst at UBS Group AG, said by e-mail. “Different priorities among the member states and higher oil prices reduce the urgency for any production deals.”

Iran has rejected any cap on output as it restores volumes following the removal of sanctions in January. The country’s refusal to participate in a production freeze proposed earlier this year prompted Saudi Arabia to block a deal between OPEC and Russia in April.

Although OPEC regularly ignores its own output targets and there was no suggestion anyone would cut production Thursday, even a token gesture could have helped to boost prices. Brent crude dropped as much as 1.8 percent, and was down 0.4 percent at $49.54 a barrel at 4:24 p.m. in London.

“The lack of an oil production target is bearish for prices, especially because hopes of a deal had increased in the past couple of days,” Jason Schenker, president of Prestige Economics LLC, said in an e-mailed note. “Say goodbye to OPEC’s efficacy as a united group.”


Weekly Market Outlook

And they’re moving in different directions

The S&P 500 still has two major hurdles to overcome before it can set fresh all-time highs, according to Societe Generale SA.

The first-quarter earnings season reinforced two problems for companies in the benchmark index, which ahead of the open on Thursday sat less than 1.5 percent away from its record closing high, reached in May 2015.

Top-line growth remains elusive, said Head of Global Research Patrick Legland, which isn’t too surprising in light of the downturn in global trade volumes.

Source: Societe Generale

“Sales growth depends increasingly on currency changes,” Legland writes, because of a slowdown in global demand and subdued consumption in the U.S.

In other words, if the actual volume of sales isn’t growing much, S&P 500 firms need the dollar value of those sales to rise in order to generate stronger revenue growth.

The weakness in the U.S. currency seen during the first four months of 2016 promised to bring about the end of Corporate America’s biggest headache and bolstered the domestic economic outlook, to boot. However the renewed desire of the Federal Reserve to continue raising interest rates, should economic data and financial markets cooperate, sent the greenback on a tear in May.

As a result, the U.S. trade-weighted major currency index has flipped back into positive territory on an annual basis, suggesting that this drag on revenue growth may not abate soon.

Source: Bloomberg

The recent performance of equity markets around the world makes it clear that the retreat in the greenback was indeed what facilitated the resurgence of riskier assets that began in the middle of February, according to SocGen Global Head of Quantitative Strategy Andrew Lapthorne.

“While equity markets have been okay but not incredible in recent weeks, a whole string of USD related trades feature amongst the leaders and laggards,” writes Lapthorne.

Meager global economic growth has made the U.S. currency “critical for the S&P 500, given the elevated valuation levels,” adds Legland.

Meanwhile a Morgan Stanley team led by Chief European Economist Elga Bartsch suggested yesterday that we could be in the midst of a respite in global trade woes — albeit one that could prove fleeting.

The bank’s global trade leading indicator “seems to point to a tentative recovery in global trade growth in the course of the second quarter, underscoring our forecasts for a recovery in global growth in the spring,” according to Bartsch. Looking ahead, the bank will also keep an eye on whether the policy-induced mini-upcycle in China could end sooner than expected, she writes — something that could portend headwinds for a recovery in global trade.

That means these two major hurdles could be moving in opposite directions in the near future, in the event that an improvement in the global growth environment coincides with a mid-year hike from the Federal Reserve that has yet to be fully priced-in.