“The laws of money are like the laws of gravity: assured and unchanging.”
George Samuel Clason
Problem is, most people don’t know these laws. Most of us weren’t taught personal finance in school, or by our parents. We never studied how money works and, more specifically, how to accumulate it.
Finance is a taboo subject for a lot of people.
Perhaps it’s a behavior learned from our close-to-vest parents, but whatever the reason, it’s done us a disservice, because instead of openly discussing the topic of money, we avoid it and fumble our way through, hoping to somehow get lucky.
This is a terrible strategy and it’s the reason so few people really have their personal finances sorted out.
It’s why so few people are really dominating the money game.
The wealthy get to where they are because they understand the money game.
But the rules aren’t inscribed on some mystical slab of granite locked away in a vault deep underground where only the rich can access it.
No, the cornerstones of building personal wealth are public knowledge. They are open to you, right now.
So the question is, once you know the rules of the game, are you going to buckle down and start playing for real?
Or are you going to keep doing what you’ve been doing, hoping everything magically works out?
’Cause remember, one way or the other, you’re in the game.
Might as well play to win.
1) Save Money
To build lasting wealth, you’re gonna have to master both sides of the court. It’s not enough to simply make millions of dollars.
The world is full of former professional athletes and musicians who handled their money poorly, and are now back to where they started: Nothing.
Learn from their mistake.
First master defense.
The best defensive strategy is simply this:
Pay Yourself First.
PYF is the single most important aspect of wealth building we’ll cover in this article, so I want you to pay close attention.
Most people spend their paycheck as soon as it arrives. They have debts (rent, car payment, insurance, etc…) that need paying, and so the first thing they mistakenly do is, they pay their debts.
Then, with whatever money remains, they more often than not blow it on entertainment. If at the end of it all, they have a bit left over, they’ll maybe stash it away in a savings account.
This is completely backwards and a surefire way to keep yourself in the rat-race living paycheck to paycheck.
The first thing you must do with your paycheck (even before paying your landlord) is you must, must, must take at least 10% and pay yourself.
You are your most important debt collector. Pay yourself first.
Once you’ve paid yourself, you can then allocate the remaining funds towards living expenses.
Chances are, if you’re used to living from paycheck to paycheck, this means cutting back on expenses to make ends meet.
You no longer have 100% of your paycheck to put towards living expenses. You now only have 90%.
But this is the first and most important step to building personal wealth.
If you do not pay yourself first, you’ll continue down the path that the majority of people are walking:
You’ll waste all your money and then look back at the end of the month wondering where it all went.
Repeat after me: You cannot build wealth if you do not save.
It’s as simple as that.
It doesn’t matter if you make a million dollars per week if you turn right around and spend that million dollars.
Break the cycle. Start saving. Start Paying Yourself First.
2) Live Within Your Means
Okay, this is piggy-backing on step #1.
If you’ve paid yourself first, you now have 10% less to live off. To accommodate this you must structure your monthly expenditures accordingly.
This is where a budget comes in.
I know, I know… nobody likes talking about budgets, much less making them. (Well, actually I do, but I might be weird in that regard).
Do yourself a favor and Google Personal Budget, download one, and fill it out.
Budgeting doesn’t have to be hard.
Seriously. All you really need to track are three things:
- Income: How much you are making per month.
- Fixed Expenses: Recurring expenses such as rent, car payment, insurance. Fixed debts that arise regularly.
- Variable Expenses: These are more discretionary expenses like eating out, entertainment, drinking, etc…
Once you have these three categories figured out, go through them one by one to figure out where you can eek out a bit more.
We’ll talk about Income a bit later, as it’s part of Offense, but Fixed and Variable Expenses are the cornerstones of good Defense.
Start by cutting as many Fixed Expenses as possible.
Do you really need 2 cars?
Do you really need a car that nice?
Are you living in an apartment that you fundamentally can’t afford?
These are the first questions to ask, because by and large, Fixed Expenses dominate the majority of your budget, therefore you stand to save the most by really asking yourself: Is this necessary?
Variable Expenses are sneaky little devils. If you don’t keep your eye on them they can quickly balloon into a truly monstrous total by month’s end.
Budget out how much you intend to spend on categories such as eating out, or entertainment, at the beginning of the month. Then hold yourself accountable.
If you outlined these three categories, then congratulations, you created a budget!
You’re already beating the majority of people who don’t even make it to this step.
I can’t stress enough how important Living Within Your Means is to building financial wealth.
Again, we’ll take it back to the analogy that it doesn’t matter how much money you make each week, if at the end of the week, all the money is gone.
It’s not how much you make, it’s how much you keep.
That is no sort of recipe for long term financial freedom or happiness.
That’s a treadmill. Ugh…
3) Put Your Money to Work
I haven’t always been financially savvy.
As recently as 5 years back I was a real bonehead. I had over $70,000 in debt and was living paycheck to paycheck (just like the bulk majority of people out there).
I was lucky enough to find a mentor who put me on the right path.
A guy who hadn’t just won the money game, but absolutely crushed it, and he told me something that fundamentally reconceptualized the way I thought about money.
It was this:
Imagine each dollar you make is a worker in a field. Each dollar you spend means one less worker in teh field, which means less overall “yield”.
The key to building wealth is leaving as many workers in the field as possible. Let their labors compound.
In time, your money will have kids, and soon, those kids will be working the field, too. In this way, not only is your money working for you, but your money’s money is working, too.
This is called compound interest and it’s the secret sauce.
Don’t work for money. Let me your money work for you.
If you want to build significant amounts of personal wealth, you must leverage the power of Compound Interest. You do this by putting to work that 10% you’ve been paying yourself.
We’ll talk more about the specific investment tactics you can employ to achieve this end in future articles, but for now, let’s keep this conversation in teh realm of high-level strategy.
4) Multiple Streams of Income Are Better Than One
Once you’ve mastered the defensive game of paying yourself first, living within your means, and putting your dollars to work, it’s time to go on the offensive.
Interestingly enough, you can make it quite far in the money game without making a ton of money.
In The Millionaire Next Door they showed that the average millionaire household in the United States had an annual before tax income of slightly more than $100,000.
That’s a reassuring number that anybody can hit.
You might be shaking your head right now, but listen, others have done more with less. Use that as inspiration.
You, too, can do this.
But how?
Well, another interesting finding from The Millionaire Next Door was just how many income streams the average millionaire had.
The answer? 3.
That means they weren’t solely relying on the income from their day-job. They had additional sources of income appearing from…somewhere.
It might’ve been a side-hustle, real-estate investments, whatever… the point is, it’s important from not only a safety standpoint, but also a long-term wealth building strategy, to have multiple diversified sources of income.
If you lose your job tomorrow, and it is your sole means of income, you are in trouble.
That would be like having a Basketball team with only one player on offense, while the others always stayed on defense.
If that one player goes down, your entire offensive engine is dead in the water.
Creating a robust system of offense means having multiple sources of income. There’s no other way around it.
Lucky for you, thanks to the internet, it’s never been easier to kickstart a side-hustle and make some extra cash. We’ll talk more about that in a later article.
5) Invest in Yourself
How do you boost your earning potential?
Well, you could go into work and ask for a raise, or you could start a side-business, but if you don’t have the requisite skills supporting that endeavor, then chances are you’re going to come up short of your desired goal.
The answer to this is simple: Invest in yourself, daily.
That means setting goals for yourself that revolve around acquiring more knowledge and skills so that 1) you can demand a higher rate at work, and/or 2) you can successfully launch a side-hustle.
Self-Improvement is the single best investment you can make. You will not find a single successful individual out there who would disagree.
So what are you waiting for? Why are you wasting so much time on Netflix and beer?
Are those activities taking you closer to, or further from, your goal of achieving financial freedom?
If they’re not, then cut them out. Replace them with something that will help.
Read a book, listen to a podcast, find a mentor or a meet-up group. Get out there and grow.
This is the last, but no less important, step in achieving personal freedom.
The Full Package
Money abides by a set of laws. They are immutable and universal.
The person who understands and uses these laws will benefit greatly. They’ll start saving and seeing their money go to work for them. They’ll start investing in themselves and expanding their earning potential.
The people who don’t? Well, they’ll keep on doing what the majority of have been doing. They’ll live paycheck to paycheck, never saving enough to really generate a meaningful return on investment, and they’ll never develop the skills or abilities that would enable them to demand top dollar at work.
The choice is in your hands. You now know the rules of the game.
The only question that remains is:
Are you going to start playing to win?
