Contrary to popular belief earning more money is not the key to being wealthy. This belief comes from a common misconception about wealth, “you need tons of money to be considered wealthy.” In order to make sense of why this is not 100% true, one must first understand what wealth is.
Wealth can be defined by our standard of living & how long we can maintain it without working. Having ‘tons of money” is not the same for everyone because our income is different. What’s a lot to me isn’t a lot to you or vice versa. So don’t compare yourself to others when it comes to money. Focus on building wealth with what you have.
Bad spending habits prevent wealth from being built. The tendency to spend money quickly does not change when we earn more. If one struggles to make $20 last, chances are they’ll face the same dilemma with $200. To build wealth we must live within our means, purchasing only what we need/can afford. Our expenses should never be more than what we earn, by following this rule we avoid getting into debt.
Here are 5 steps to building wealth with any income:
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Invest, Invest, & Invest Again
To invest means to turn one input into several. Investing works the same way as planting a seed. The seed starts off small but over time it grows into a big plant. Similar to how a few dollars invested can grow into thousands over time.
Investing should only be done when one has extra money to spend. Because it’s associated with risk, it is best to invest an amount your comfortable with potentially losing. There are three types of investing: safe (low risk-low reward), moderate (medium risk- medium reward), aggressive (high risk- high reward). Choosing what type of investor you want to be should depend on your financial goals.
So instead of buying a new outfit that you don’t need, invest that money and let it grow. You’ll thank yourself in the end when you decide to check your net worth!
2. Pay Yourself First (PYF)
It’s a simple as it sounds, pay yourself first whenever you receive money. This is a form of saving that helps you learn how to spend less.
To pay yourself first, take a percentage of any money you receive and store it for a later purpose. This can be an emergency fund, a savings account, or just money to buy a new car, the choice is yours. But whatever you do, don’t touch this money. Have the discipline to let it build up and use it only when the time is right.
If you decide to pay yourself first, 10% of what you earn, your left with 90% to spend. Living off less will help you to make better spending decisions. This may be hard at first but if you keep at it you’ll be a step closer to building wealth.
3. Keep Track of Spending
Knowing your numbers is crucial to success! Keeping track of money allows one to effectively manage it.
It becomes easier to hold onto money when you actually know how much you have. Not knowing our numbers allows us to spend without worry. That is until we decide to check our bank accounts, finding out we have less than we expected. Doing this continually can eventually create a paycheck to paycheck style of living.
How can we expect to make better spending decisions, when we don’t know why our decisions are bad to begin with? Tracking our money will teach us how to spend wiser.
4. Educate Yourself
This is perhaps the most important way of becoming financially free. Robert F. Smith said it best, “You can actually make more money being smarter than being strong or fast.” The mind is our greatest resource, on that note, education is the greatest investment.
Now becoming more educated does not necessarily mean going back to school. We can learn from a wide variety of places, not just an institution.
We all have access to the biggest library in the world: the internet. Instead of focusing on how many likes your last post got, take the time to learn something new. Watch informational videos, read blogs, or take courses that will teach you useful info.
Whatever you decide to learn make sure it’s not just random. Learn only what will make you more useful, like a new skill. Also remember that knowledge on its own is not good enough, but knowledge put into action is true power.
5. Pay off debt
Debt keeps our head under water. If we are to swim to the top we must get rid of the thing holding us back. You can’t put the horse before the stable. Before any of the previous steps can be used to build wealth, one must eliminate their debt.
Take the time to calculate how much debt you have and compare it to your income & expenses. Create an achievable plan for paying off that debt then stick to it. Understand that it may take time to dig yourself out of debt, so start asap. Learn how to get out of debt with this post.
In Conclusion…
Becoming wealthy takes time. If your expecting to get rich quick, you’ll never find the success you desire. Wealth building is a process. Start the process off with a consistent stream of income and be ready to make sacrifices. Sometimes we feel the tempted to spend, in moments like these we cannot listen to our impulse. Learn how to say no.
Putting these steps into use requires a great deal of discipline. Forming new habits is hard when we lose sight of what we want, so try to look at where you going and not where your at. You’ll be happier with your results than if you made no progress at all.
Good luck on your wealth building journey, see you on the other side!
About The Author
My name is Charles Findlay and I’m a finance writer. Four years ago I discovered my love for the world of finance. Now I’ve decided to share my love of this world through writing. I’m currently learning more about this topic at Montclair State University. Within a few years I’ll have my degree and hopefully will have taught many about finance through my writing.
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