There are many great books and blog posts out there about building wealth. I’ve read and continue to read many of them. After all is said and done though, there are really only two ways to fundamentally grow that stack. Either increase the money coming in or decrease the money going out. Pretty complicated isn’t it? Simply stated, when you can further the distance between the two, the more financial leverage you will have.
Increasing The Income
What can you do to bring in more money? Overtime opportunities, promotions, maybe even switching jobs to something that pays more? Maybe it is even picking up an extra job or doing some side hustles on the weekend. These are some options to consider to afford you the opportunity to increase money coming in. And with this money, you can acquire assets that produce dividends, rents, and interest that will increase cash flow on top of your traditional income sources to create real wealth by compounding year after year. The more income streams that you can add will also add a measure of safety if employment loss would occur. Although I do have a fair amount of index funds through work, I do have a love for dividend stocks. I really enjoy seeing those quarterly payouts hitting my account! Some folks might be more attracted to real estate investments. I have a friend who owns and rents out a 4-plex and does well with it and enjoys that process. Everyone is different and there are many different strategies that can make you successful in the long run.
Cutting The Waste
In my opinion, reducing spending is easier than increasing income. There is a lot of competition out there and different options to save significant cash. The first thing that always comes to mind is cutting the cable cord. More than 1 in 5 households have dumped cable. I haven’t done it but saving around $125 per month would be significant. Cell phone providers are also starting to compete harder for your dollar. Hopefully with the addition of these unlimited data plans, it will help lower the cost of the smaller plans. I’ll give one recent cost cutting example from our household. Two weeks ago, our insurance agent called with a proposal to switch our home owners insurance to a different company. This change will save us over $800 per year, all with similar coverage mind you. It really does pay to shop around even though this particular situation just happened to fall in our lap. Take advantage of these situations. And these are just a few of the “smaller” things. What kind of larger monthly ” money suckers” do you have? Auto loans, large house payment, school loans?
The End Goal- Increasing Wealth
No matter if the goal is to build an emergency fund, add to investments, or get out of the rat race permanently, it comes down to cash in and cash out. Businesses operate this way and households run this way. It all boils down to how much separation you can get from the income and expense columns in the monthly budget. By the way, if you don’t have a budget, make one! I actually enjoy the process and it is fun to see where money is being allocated and what can be trimmed. Years ago when I set up my first crude budget spreadsheet was when the light bulb finally came on to see the changes needed. It is amazing to see how a few changes can make a big impact on your net worth over time.