A higher salary does not guarantee more “wealth” than a lower salary
The amount of money you earn by itself does not help in building wealth or achieving financial freedom. What truly matters is the money that remains from your salary or income at the end of the month. Although it may seem obvious, many people overlook this simple rule.
The only thing that matters is how much money you can save from your income. And for that, we only have several ways: save more, spend less, or earn more money.
As I always say, choosing between earning more money and saving more money, always choose to make more money.
Everything starts with saving
When we talked about the four fundamental pillars of wealth creation, we had:
- The money you earn
- The money you save
- The interest you get for your money
- Time
The first three pillars are alterable if we add more in one post or another. I explain. If you earn more money, you should not focus on finding ways to save more money. If you lead a frugal lifestyle, you can save more than another person, even by earning less money.
In personal finance, the money you save is destined for a single purpose: investment. You can also reach the goal if you manage to get more profitability for your money thanks to your investment skills, earning less and saving minor but investing better.
In any case, time is the most important asset for the creation of wealth. So, the sooner you start to invest, the better since that is how we are putting the magic of compound interest to work.
But everything starts with saving. If you do not save anything, you cannot allocate money to the investment. Focus on increasing the amount of money you have left at the end of the month with the idea of investing it.
Avoid early debts and credit card debts like the plague
This advice is nothing new. If you acquire a mortgage that takes more than 30% of your income when you are young, you will have put against you the probability of achieving financial freedom. However, at this time, due to low house prices, at a given time, it could be more profitable to buy than rent if you acquire a property as an investment, with the idea of obtaining a return on it later. We will talk more carefully about this point.
Credit cards are the worst enemies in creating wealth because they generate an interest against us much higher than the average return on equity investment. So, if you have credit card debt, the best investment you can make is to take that debt away. If you manage to take away a 15% interest against you, it is like achieving a 15% return in your favor. Remember: “Money not spent has the same value as money earned.”
Do not live within your possibilities. Live below your means
It would be best if you began to distinguish between desire and need. Having a car is a necessity (in most cases). Buying a $40,500 car is a wish.
Most of the significant expenses that we make are usually wishes, in many cases, with the idea of pretending. These desires and desires to act seriously harm the natural health of our finances.
There are two types of people: the one who tries to appear wealthy and the one who has wealth. As a rule, the one who has wealth is because he did not spend money trying to pretend it.
So, it always remains below your ability to generate income.
Where does the money we spend go?
If you want to take control of your finances, you must understand and analyze your consumption habits.
Small money leaks seem insignificant every month, but they add up to precious money that we could use to invest at the end of the year. In other cases, people who carry in their day-to-day a frugal lifestyle often commit three significant expenses that ruin all the effort of saving, such as a vacation or an expensive trip.
In any case, and as much as possible, try to know exactly where we spend money each month and analyze how you can cut spending.
Most experts in financial education talk about cuts in small expenses such as having a coffee at work. Still, we should keep paying attention to the high costs, such as technological devices, it is those pleasures: cars or luxurious houses.
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