The key to building wealth is not just about making more money...
The key to increasing your personal wealth is not making more money, it’s keeping more money! If you think of yourself as a business, you will see income coming in from multiple sources and expenses going out to support that income as well as general living expenses. Also depicted below:
For example, many young people look at new employment opportunities only in the context of how much more or less they will be taking in but forget to consider amounts they may be spending to support their new job. person living in New York City on a salary of $60,000 per year is likely taking home less money than someone living in Iowa on a salary of $50,000 per year. This is due to NYC having a significantly higher cost of living- including rent, food, and taxes that must be paid. Keep in mind this is before any discretionary luxury expenses as well.
Discretionary expenses play a bigger role when the conversation is shifted to Lifestyle inflation. Lifestyle inflation occurs when one's spending increases with their income level. It takes many forms, from buying a nicer car, moving into a larger house, or even just eating out more often whenever you get a raise or receive some form of additional income. When the amounts are plugged into the equation above it is common to see that someone who earns a raise but then spends more money isn't growing their wealth any faster than they were at their lower level of income. For many people, this alone prevents the growth of personal wealth.
What does this mean for me?
Ultimately, the advice that makes the most sense for everyone is to make as much money as possible while spending as little as possible. We understand that everyone's situation is different, and not all money making and money saving strategies will apply to everyone. To summarize, here are some key things we think you should focus on:
Earning Income
Pick up additional shifts at your job (if possible)
Start a side hustle that earns income outside of your regular job
Invest your spare cash into income generating assets
Develop your skills to make yourself more valuable, and leverage those skills for more income
Cutting Expenses
Avoid lifestyle inflation! (Don’t buy things you don’t need)
Track and audit all discretionary expenses to see where you can cut costs most effectively
Reduce living expenses by living in a cheaper area, with your parents, or with roommates
Do you have a side hustle? How do you keep your expenses to a minimum? Be sure to let us know in the comments below. As always, thank you very much for reading and we will see you next time!