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Building wealth is not what you see on tv and most financially free households don’t look like the folks on social media who are glamming it up. They are likely right next door to you in your own neighborhood. One of the obstacles on the road to wealth is the belief of what being wealthy means. There is a false belief that to be wealthy you have to have the big house and the nice clothes and the brand new overpriced cars.
But being wealthy is not about being full of materialistic things. Being wealthy is being able to live from your investments for a long period of time without having to worry about earning an income. Being wealthy means knowing where your money is going and knowing that it is being invested wisely. Being wealthy does not happen once you reach that level of wealth that you dreamed of, it happens NOW in your mind when you start to learn about the ways to become wealthy.
The journey to becoming a WEALTHY person starts in your mind. You must believe in yourself and take the right action towards achieving your wealth. You do not want to be, as they say in Texas- “All hat & no Cattle”. If you want to be wealthy then you have to realize that spending all of your money on depreciating assets is not the way to go. To become wealthy you must spend your money wisely and in the right places.
It Will Take Time and Focus
Wealth is not easy to attain, it takes hard work and discipline and dedication and determination. Wealth is also easily destroyed in the wrong hands as in the case of lottery winners whom most are broke just three years after winning the lottery. Learning to create wealth will allow you to live your best life and to provide generational wealth to your future generations. Imagine what it would be like for you to be able to provide a down payment for a home for your children. Or knowing that they will not have to spend all of their time working on something they do not enjoy because you learned how to build wealth.
Imagine taking those vacations that you always wanted to go on and spending money on the things that bring value to your life knowing that you are making those purchases within your means. Imagine living the life you always wanted and not having to worry about reporting for work somewhere Monday through Friday. Imagine working on your passion projects knowing that your financial life is taken care of. Imagine your life as a financially independent investor. Imagine your children learning these skills and knowing that they and their children will have a better life because of your actions.
Imagine living in your beautiful home with your spouse and children and knowing that it is paid in full and there is no monthly mortgage to worry about. Imagine having your kids college funds completely funded by the time or before they graduate high school. Those are the rewards of learning to become wealthy and they are the reason why persistence and dedication will pay off. Just because we live in a consumption based society does not mean that you have to have a consumption based economy in your household.
Small But Important Step – Why You Should Create a Budget
Why does having a budget help to build wealth? Because most people do not use a budget – and without knowing where your money is going out and coming in you will inevitably be a cash strapped household. Because it’s a financial skill that you need later to maximize your profits and investments. Because, It’s going to take more than “saving” to become wealthy.
Being Frugal and living below your means is a must if you want to become wealthy. This is a skill that can be learned. Just like you learned to live way above your means through society and advertisements all these years. Learning that behavior took years and your participation in it was almost involuntary. Your progress towards frugality and living below your means will be much faster because you will be doing it voluntarily.
Think of operating your household on a budget as the bedrock of building your personal wealth.
How to Create a Quick and Simple Budget
There are many ways to go about creating a budget. You can use a notebook and a pencil and calculator. You can use an excel spreadsheet or google sheets. If you are comfortable using technology then we would recommend a spreadsheet. It makes adding your numbers easier and you can copy paste to create separate months.
Here is the simplest and quickest way to start now with your budget.
- The most important step is to create a list of all your expenses. Anything that goes out each month needs to be on this list. Rent or Mortgage, Food, Electricity, Water, Internet, Cable, Car Payment, Car Insurance, Health Insurance, Credit Card Payments, Student Loans and other Miscellaneous items.
- Then, create a list of your Income for the month. Anything that comes into your account as a deposit.
- Subtract the Expenses from the Income. Hopefully you will have a positive amount of money leftover.
If you do not have enough money leftover please keep reading! Or keep reading anyways because you want to build your wealth.
Fire The “Joneses” and The “Look Rich” From Your Life
Your way of decision making around your financial life has taken you where you are right now, and it has not returned what you expected. Keeping up with the “Joneses” who moved across the country and became the “lookrichs” – You know the folks that are so indebted just to look like they have it all but are broke when you analyze their finances. Those folks are bad company to keep for wealth building. Unless they want to change and build their own wealth.
Yes you have the material possessions that you desire but you are currently working to maintain a way of life that you cannot afford. So it will become very important to understand how much you can really afford. It might surprise you that with small changes you may be able to change the direction of your economic life. Being frugal does not mean that you will no longer be able to afford a latte as many people believe. But you work hard for your money so why waste it on unnecessary consumption.
Have Not Learned About Interest Yet? You Should!
What if you add the interest that a purchase will cost you on top of the price, would you still consume lavishly? A cup of coffee on your 17% interest card at $4 will end up costing you $4.68 (inflation not factored in). If you use that same card all month and stop at the coffee shop 5 days a week, you are spending a total of $13.60 a month just on interest or $164 per year. Depending on your income, this could be an entire working day for many, just to pay for lattes. Is your instant gratification worth having to work an extra day? Or is having that time to invest in yourself and your dreams more important to you?
A Budget will bring into light a visual of your household’s economic situation. It will show you your earnings vs your spending. This is a great opportunity to focus on the areas that need to be addressed to get you closer to your goals. A budget is a tool for improving the speed at which you can reach your financial goals. A budget brings you the confidence to make the tough financial decisions and feel good about them.
You will feel that your household’s finances are running smoothly. Imagine if your company did not use a budget? How comfortable would you be working for them? Your Budget will become your tool to wealth. Do not see it as a restriction on your spending but as a visual motivator for what needs to be done and what needs to improve and what needs to be let go of. See it as your map for the future!
The Powerful Benefits of Creating A Budget
One of the benefits of creating a budget is the ability to dedicate more funds to areas that can be tax deductible. Paying less taxes on the income you bring home will provide more funds for you and your family. As in the coffee example. You paid taxes on those purchases when you got paid, then you paid sales taxes at the coffee shop. If you instead placed those funds in your retirement account or any type of tax deferred account then you will earn those funds and not have to pay taxes on any of it. You get to keep the entire $164 dollars plus any compound interest that accumulates over time to create wealth and invest in your future.
Having a budget for today allows you to plan for your future. Future investments, future adventures, future fun that is paid for because you can afford it! A clear vision of what you wish your life to become is another benefit of creating a budget. You will know where you stand and how much it will cost you to live the way you wish to live. It is a great action promoter. Once you get started and start seeing the results, you will not want to stop!
We cannot stress how important creating and using budgets are to setting up disciplined financial decision making and how this will affect your future earnings and investments. I’ll go as far as to say this is the most important thing you can do for your financial success.
What to Do With Bonuses and Pay Raises
Fantastic! You received a bonus or a pay raise. Is it time to go on vacation or purchase that brand new television? The answer is a big fat YES! If those expenses can be purchased with 20% of your bonus or pay raise then please go ahead and have a great time shopping. One of the many arguments about money is whether to use the bonus to purchase things we want or should we save it or should we pay down our bills.
There is no need to worry about how you are going to spend your money. It is possible to do all three. Use 50% of your bonus to pay bills and expenses. Then use 30% of your bonus and place it in your savings account. And finally, use 20% of your bonus to spend it on the things you wish to buy. This way you can save, pay down debt and spend your earnings-guilt free- on whatever you like.
You Make Good Money, How Come You Are Not Wealthy Yet?
Just because you learned how to make money does not mean that you learned the skills to keep your money. There are skills that are required to become wealthy. Is not just about learning to be frugal and not being able to spend money. It is about doing more with what you have.
Negotiating is an important skill to becoming wealthy. Why do you need to negotiate? Well, taking away a lifestyle that has been in your life for many years will be a difficult transition for you and your family. Learning to negotiate the budgeting terms and the planning and getting your family to get on board will contribute significantly to your goal of becoming wealthy.
Another very helpful skill is that of knowing and sharing your vision. Know why it is important to stay within budget. If you don’t know, let us tell you why. Because staying within budget will allow you to pay yourself first before sending the rest of your earnings away to banks, credit cards and retail stores. Because staying within budget places high importance in your financial independence instead of that of banks and credit card companies. Once you understand the importance of taking care of yourself financially then you will become wealthy.
Should You Save Or Pay Off Your Debt?
Most people will recommend that you pay off your debt as soon as possible. Others recommend that you save a small amount to get you through a small emergency and then pay off your debt. From a financial standpoint it would make sense to pay off your debt as soon as possible however not saving in order to pay off your debt is not an option. Your goal should be to continue to make the minimum payments on your debt to keep up your credit score and to save as much as possible.
The 2020-2021 pandemic changed the rules for paying off debt. We realized that having cash is much better than having an excellent credit score. Of course, there is nothing wrong with having both. Once you have your six to eight months of emergency funds in place then it is okay to tackle that debt and pay it all off. The reason why this makes sense is because the money you owe to creditors is money you already spent and the limit on their accounts can be reduced at any moment leaving you with little money in the bank and no money on credit to be used in case of an emergency. This is why saving just a little bit is not advisable.
Yes, you will pay more money on interest over the long run but you will know that you and your family are taken care of in case of loss of income or sickness. The money you are saving for your rainy day fund can be placed in a money market account so it can gain interest. That way you will be offsetting some of the interest that you are paying on your credit cards.
So what is the plan once you have your savings and are finally able to tackle your debt?
The first order of business is to start by eliminating any credit card that has high interest. This can be done by either opening a new card and doing a balance transfer to a 0% APR (Annual Percentage Rate) as long as the new rate after the initial period is a good rate or if you know that you will be able to pay it off before the year expires. This move will immediately save you the money that you were paying in interest. Of course you can now apply the old minimum payments to the new card and even add the money you were paying in interest to speed up the pay off process.
The rest of the cards remain the same unless you can take your second highest card and do another balance transfer. This would be done six months after the first balance transfer to avoid negative marks on your credit report. Creditors do not like seeing too many inquiries on your credit report. The second option if you wish to leave your credit report alone is to pay off the highest interest rate credit card as soon as possible. This will take a little longer but it will avoid any marks on your credit report. The same procedure applies to all your credit cards until you are done.
So if you are in debt and your goal is to save for your emergency fund before you pay off your debt, how do you get ahead? Well, this is when investing in yourself comes in. Get some help from an expert. This will save you TIME and MONEY. Time is what most of us are short on and spending large chunks of time researching solutions to your problems will not help you make progress. Hiring an expert will save you time and the headache of making small mistakes that can have a significant impact on your progress.
Conclusion
In conclusion, do not get discouraged if you are not yet wealthy. Learn what it takes to become wealthy. Become the master of your future by following and embracing a budget in your household and reap the rewards. Let go of the misconceptions that you must have the newest and the latest in order to prove that you are wealthy. Know that what random strangers think of you will not make you wealthy. Let go and sleep better at night. Allow yourself to create the life you dreamed of by allowing yourself to learn and put into practice the skills necessary to be wealthy beyond your imagination.
The most powerful step you can take to creating your own personal wealth is creating a budget and being disciplined in living within that budget. If you cannot control budgets then arguably you cannot build your wealth because you don’t know how or where your capital is being spent.
