Defined Sight

Personal Development Blog

Building Wealth Comes Down to Two Basic Principles

Wealth BuildingThere 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.

 

8 Comments

  1. It took me probably longer that it should have but I love dividend stocks. I use to love growth stocks in my younger days but now having that quarterly amount drop into the account is nice 🙂

    Yesterday we actually renegotiated our cable bill lowering it by $30.

    Always looking for ways to save a couple of dollars 🙂

    • Mr Defined Sight

      February 26, 2017 at 8:14 am

      Good job with the renegotiating. I also do that every couple of years. I kind of hate doing it at first but then after I’m done I feel a sense of accomplishment. The money is better in your pocket than in theirs!

  2. Just found your blog via Mustard Seed Money’s site. I have enjoyed reading your posts. Obviously, you are 100% correct on this one. There is nothing complicated about building wealth slowly. Learning the principles is the easy part, putting them into action in tangible ways (like cutting the cable cord) day after day, year after year is what will determine your success.

    The really interesting thing for us is that our spending is lower now than it was 17 years ago (when adjusted for inflation) and our happiness level and standard of living is off-the-charts higher. The difference? DEBT! 17 years ago, 30% -40% of our income went towards paying debt and much of it was very bad debt in the form of student loans.

    • Mr Defined Sight

      February 26, 2017 at 8:19 am

      Thank you for stopping by and I’m glad you found the site! You are right, cutting down the debt is so important. We had the same thing. Student loans, car loans, etc. When those were all eliminated, it made such a huge difference. Again, thanks for stopping by. I will be checking our your site soon!

  3. I think we think in a similar manner. I turn all my side hustle profits into stocks. I have my index funds through work as a solid base, but I LOVE dividends. Still, I have mostly chosen growth stocks for the moment. When the time is right I will switch over to dividends.

    Cut the cord! You won’t miss it! Free Hulu using bing rewards – maybe split a netflix account with a family member. If you have amazon prime you also get that. Buy a refurbished ROKU off eBay, I bought a manufacturer refurbished Roku 3 for a decent discount three years ago and it was like new. No problems at all with it and Roku is speedy fast.

    • Mr Defined Sight

      March 2, 2017 at 10:05 am

      I go back and forth in my mind a lot pondering dividends vs growth stocks. I have my index funds geared primarily towards growth funds. Hopefully I have the bases covered either way. Regarding the cord cutting, the only thing that holds me back on that is sports viewing. It seems like they are coming out with more and more packages all the time though for that situation. I see even You Tube (google) is getting in the stream tv business. Fascinating. Thanks for dropping by again!

  4. Yeah generally wealth accumulation boils down to some simple principles and I think you’ve nailed them. Increasing your income is so personal with regards to your specific personality and skillset though, which is why so many financial sites focus on your 2nd point. Everyone has fat they can cut from their bills 🙂

    • Mr Defined Sight

      March 6, 2017 at 8:47 am

      I agree. We have some fat that could still be trimmed from our budget. One just has to find that balance. Thanks for stopping by!

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