The formula for building your wealth is quite simple. Spend less than you earn. There’s no secret or trick involved.
Varying situations make the process more or less difficult. When the time comes to start planning for your long-term financial stability, these are the four pillars that every person should absorb and understand, as elementary as they might seem.
1. Spend less
You have total control over how much you spend, making it the easiest aspect of your finances to change or adjust. It’s highly likely that you could be spending less than you are right now; a lot of our spending is caused by marketing influences, boredom, social pressures, and so on. We make purchases without thinking about the value of the products we buy now and in the future.
The first step to any money-saving project is to analyze your spending, come up with a budget, and cut your expenditures as much as possible. Until you spend less than you earn, you will never be able to save money.
2. Earn more
Unlike spending, our earnings are subject to many outside factors. Extra earning can come from a second job, freelance work, or a raise at your current job.
Try talking to your boss about your saving plan when asking about a raise. Otherwise, the skills you use at your day job could be valuable to other companies or individuals on a freelance basis. You could also try to bring in some extra income by selling items online, through platforms like ETSY or eBay. Otherwise, you could investigate a second job as a teacher or tutor. Do you have a marketable skill that you are able to teach to others?
The options are countless, but the idea is the same: any extra income you earn can go straight into your savings account.
3. Eliminate debt
We don’t realize how many people are living in huge amounts of debt. The irresponsible accumulation of debt has its sources in many things, including a lack of education and knowledge about the system. Most people don’t realize that getting into debt causes you to actually lose money in the form of interest payments. Taking on debt in order to have money on the spot will be very expensive in the long run and is best avoided if possible. You’d be wiser to wait and save the money you need for big purchases. It will cost less, and leave you with more liquid money in the meantime, in case of an emergency. Debt, in tough times, cannot be “frozen.” The lesson? Stay away from new debt, and if you’ve already racked some up, it’s time to start paying it off.
A common misconception is that we have to work for money. The truth is that money can passively work for us, if put in the correct places. Individuals cannot retire from the work force until they have money making more money for them, usually in the form of retirement savings.
Unless you are independently wealthy, the only serious way to have enough savings in order to retire when you hit 65 or 70 is to save massive amounts or invest your money wisely. Investing can start off small, and be learned as you progress. Begin by investing with a basic portfolio in your employer’s 401(k) plan, an IRA, or the like.