The path to personal wealth follows a simple equation:
Wealth (Income) = Revenues – Expenses
There’s only two ways to change this equation. First, increase your revenues or sources of income. Second, reduce your expenses. If you live above your means, you are in debt. If you live below your means, you have savings. Living below your means over time will equate to savings.
There are many ways to increase your revenues.
- Increase your pay – Whether you are an employee, business owner, or freelancer, you must find ways to get paid more. Working at McDonalds does not a wealthy man make. This can be accomplished either through putting in your dues and climbing up the ladder or investing in yourself through education/training and making yourself more valuable in the marketplace.
- Invest your income – Your pay alone is guaranteed to be what you expect it to be. Investing it in the stock market, bonds, or other investments creates opportunities for your money to work on your behalf. Retirement accounts can be used to reduce the effect of taxes.
- Create cash generating sources – Your primary income through a job is your first source of income. Other activities can generate additional streams of cash. For example, rental income, writing a book and creating sales, creating a side business that generates cash.
There are also many ways to reduce your expenses.
- Spend only what you need – Reduce the money you spend on things you don’t need. Be frugal. Watch your subscriptions and automatic expenses, they easily add up. Cut your cable. Eat at home more often. Do less costly activities.
- Reduce your debts – Interest expenses are money out of your pocket for no purpose. If you had to go to debt to purchase something, you shouldn’t have in the first place. Pay off your debts with vigor.
- Change your lifestyle - You’ll be surprised how little someone can live on. In fact, most people live on very little. They won’t have luxurious vacations. They don’t eat out. They won’t go to bars. They live very frugal because they must.
Also, save an emergency fund, no matter how small. When you have little, any of life’s misfortunes can quickly bury you back in the hole again.
Eliminate debt with passion. Debt is the shackle and chains of the modern era (and the past as well). Debts in all forms, mortgage, credit card, student loans, hold you back from your dreams. Listen to yourself. Debt locks you into your job, whether you like it or not. Debt keeps you from moving to a new location. Ask anyone that’s underwater in their mortgage. Debt keeps you poor while the rich only get richer.
Build a huge pile of cash. Many will tell you that money that’s not working is wasted money. However, Mark Cuban disagrees. Money that’s fully invested in the stock market will follow the waves of the market, controlled by large institutional investors. Money dumped into an overpriced home can easily tumble as many have unfortunately learned. Money that’s available can be dispatched to buy your dream home at the bottom of the housing market. Money that’s available can be used to buy investments at the bottom of the stock market. These once in a decade events rarely occur but windfall comes to those who have patience and the cash waiting at their side.
Finally, my best advice to anyone is to not follow the advice of anyone. No one cares more about your money than you. Hold it tight. Stop wasting your money buying advice. It’s free, whether online, through this post, or at the local public library.