Be That As It May, Wealth Creation Always Comes Down to These Four Pillars
Wealth is easy to build. Not easy , but simple. We would all like to make more money, but if your long-term prize is financial independence, there are no shortcuts. There are only these four basic rules.
This does not mean that it is equally easy for everyone to accumulate wealth. Some people need to climb much larger mountains, and other people are pulled down the mountain as they try to move forward (while others start half way). But when it comes time to look at your financial future in the long term, these are four starting points that everyone will need to follow, no matter where you start.
1. Spend less
Let’s start with what you control the most: your spending. Most people in America can spend less, although we often don’t think so. Everyone I know who comes to a poor country returns in shock at how well we live here. Most of us have no idea. Even if it seems to us that we have little, our life is a luxury compared to billions of people around the world.
Most of our spending comes from social pressures, successful advertising, or simply our perception that “we can afford it.” A key question is missing from the decision-making process: How will this purchase make me rich in twenty years?
If there is a common theme in the lives of financially successful people, it is that they spent less than they earned. Are there things “on the edge” that you could do without in order to spend less than you earn? Take a look at your expenses and find out. Whether you spend a lot or go broke , everyone needs a budget.
No matter how you cut it, as long as you don’t spend less than you earn, you don’t get rich. You don’t have to be extreme Hetty Green , but making the informed decision to spend less than you earn is a key step to long-term financial independence.
2. Earn more
Of course, there is an even more obvious way to get rich, albeit much more difficult: to make more money. Everyone has opportunities to earn more , but this is not always easy, and they are not 100% under your control, as are your expenses.
Here are some examples of how to start earning more:
- Asking for a raise: you know what they are saying: if you don’t ask, you cannot receive. Four or five years ago, the climate may have been difficult to warrant a rise; but your chances may be much better today. Make sure you are logged in prepared for the best possible shot.
- Side Job: For example, if you are doing IT for your company, there might be other businesses that would be happy to hire you to do what you might be doing in your sleep on weekends or evenings.
- Rollover: Buying cars, bicycles, houses, refrigerators or other goods and repairing them in your spare time can make you extra money. It might even lead to the next opportunity …
- Starting a Business: Most businesses start after hours in someone’s garage or basement. Your hobby can be a good start. eBay and other shopping sites offer you an inexpensive entry point where you can start selling what you do or buy.
- Teaching: If you are good at something, chances are many people will want to learn … and pay for that knowledge. Community colleges and your local university probably have continuing education or adult education programs that run in the evenings and for which they need teachers.
These are just a few options, but you get the idea: Earning more is the easiest way to get rich. Again, don’t confuse “easy” with “easy” – moving to another job means a lot more work for you. But as they say: where there is will, there is a way out.
3. Payment of debt
Debt is like fire: you can do a lot with it, but it can kill you too. All that is needed is to change the direction of the wind or something went wrong. Debt can be incredibly rewarding, but most people are unaware of its dangers, as evidenced by the ten million people who lost their homes during the Great Recession.
For example: If you save $ 500 a month, you can buy a $ 30,000 car in five years with cash. However, you can buy this car today on credit and pay just over $ 500 a month. The main difference is the date of receipt of the vehicle.
In other words: debt is nothing more than impatience expressed in dollars.
There are two problems with this. You end up losing money in interest that you would get from your monthly savings. Of course, the latter isn’t all that much in today’s economy, but the principle applies everywhere: Impatience costs money and depletes your wealth. Second, when you are saving and something bad happens, such as a layoff, health problems, family disaster, or some other disaster, you can simply pause your savings program and cut your spending to a level that you can. do it. You can’t do that with debts. The bank insists on receiving full payment every month. There is only one reason for bankruptcy: debt. It is impossible to go bankrupt without debt.
There is a saying among the pilots of the Alaskan bush: there are old pilots and daring pilots, but there are no old daring pilots. Simply put: those who take risks don’t. The same principle applies to those who create wealth, and there is no greater financial risk than debt. Donald Trump used debt to build his empire and was all but wiped out when the next recession hit. Barely surviving, he decided to stay out of debt and trade more on his own behalf. Lesson: stay away from new debt, and if you’ve already accumulated it, it’s time to start paying it off .
4. Invest
You get money either from what you do (work or business) or from what you own . You will never retire until you make this transition, because retirement requires you to earn a living solely from what you own, which is your retirement savings. Unless you were born rich, the only way to have enough livelihood after retirement is to invest your money, and the sooner you start, the better.
You know you will never go beyond the lowest person on the totem pole at work if you don’t put in your best effort to become better at your job, right? Investing is your next job: you have the opportunity to stick your head in the sand and pretend you can live without it, or you can realize that your future depends on it and find out what you can do well.
So, just as you start your career with an entry-level job and gain experience to earn more, you start investing with your employer’s basic 401 (k) portfolio , IRA, or something similar. You can learn more advanced things along the way – the most important investment tip is to start now. You don’t need to be a Wall Street prodigy, you just need to start early.
Chances are you already know about this. Most people understand, but few realize how exceptional these pillars are in relation to everything else. Not all of them are straightforward, but there is no other way to amass wealth and gain the financial freedom that comes with it.
Two Cents is Lifehacker’s new personal finance blog. Follow us on Twitter here .