Creating Wealth Secrets – More Money Is NOT The Solution, This Is
Creating Wealth Secrets – It’s Not How Much You MAKE; It’s How Much You KEEP That’s Important
It’s no secret that most people today live paycheck to paycheck, meaning they consume their entire paycheck within the month with nothing left over at the end of the month. There are perhaps many reasons for this; many in this category may cite the fact that it’s due to their LACK of income that forces them to live paycheck to paycheck.
While it is true that simply having an extra $500 or $1500 a month may be enough technically to be able to allow many of these same people to no longer have to live paycheck to paycheck, the odds are that without increasing their financial education and improving their financial intelligence, they would most likely still be living paycheck to paycheck even with the extra money each month.
The fact of the matter is that “not enough money” is generally NOT the real underlying problem. (That’s just great marketing on TV and in magazines that has convinced you that you just need access to more money – so you can spend more of course, which most people of course do. Great advertising, right?)
Not enough money is the symptom (it’s what you feel, but it’s not the SOURCE of this financial pain); the cause is due to a lack of financial discipline, from a lack of financial education that results in having a low financial IQ that creates this perpetual problem that left uninterrupted will leave a person poor. It’s not the dollar amount.
Creating Wealth Secrets – What do I mean Financial Discipline?
As I’ve written in previous posts on creating wealth, becoming financially free occurs once your passive income (from a residual income business or properly managed rental income property, for example) exceeds your monthly expenses. In order for that to happen you must know exactly how much PASSIVE INCOME you’re creating each month AS WELL AS the amount of your monthly expenses. That requires tracking your income and expenses, which most people just don’t do. (How many people do you know who simply use their bank balance as an indicator for how well they’re doing?)
Another creating wealth discipline most people know about but just don’t do is paying themselves first and consistently every month (or from every paycheck, etc). Everyone knows they should set aside and SAVE 10% of their income each month and yet as simple a concept as this is, hardly anyone does it. Do yourself a favor and grab the book “The Richest Man In Babylon” now – it will change your life if you apply the principles in that book alone. Simple yet very profound. Again, the importance of financial education. (I discuss this topic further in my article 1st Steps in Creating Wealth – Begin By Paying Yourself First)
Also, certain expenses can be deducted against your taxable income, lowering the amount you pay in taxes thereby increasing the amount of money you have to reinvest into your residual income business or other asset to again increase your passive income to get you that much closer to creating wealth. Such tax planning – like spending money wisely in the right areas – can help you reach your goal of financial independence that much faster (as long as earning income from a residual income business for example; no tax planning advantages for those only earning income as an employee – see my article on Creating Wealth – The Type Of Income You’re Making May Be Costing You The Most for more info).
As I’m sure you’ve seen or heard before, money has both the power to make you rich as well as poor. Money after all is just an idea, a tool. More money will simply amplify your current financial situation, good or bad. More money is not the solution. Financial education – learning the difference between assets and liabilities, good debt and bad debt, etc – is the remedy which will help you understand and better use the tool of money so you can keep more of your money which will allow you to move towards creating wealth.
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Creating Wealth Secrets – More Money Is NOT The Solution, This Is http://t.co/F7gPyUFg
I agree with you 100 percent … it’s not just about the money at all! It’s about how well you learn to manage your money that will take you from paycheck to paycheck to increased financial stability.
The first place to start is indeed finding out where your money is being spent. This means that for a period of time, usually 6 weeks you don’t change your daily, weekly, or monthly expenses. Once your “trial” period expires you add up your total expenditures and many will be shocked to discover the extravagent spending which continues on a regular basis.
Only when you have a better idea on where your money is going can you determine the best course of action with regards to how to spend less but more importantly, how much more you can save on a monthly basis.
Thanks for sharing Hans,
This is one of my favorite topics, since I always thought wealth it was about money only. Then I learned about the balance life and about the mindset. You are exactly right about residual income and I love it. Thanks for sharing!
Hey Alicia, I appreciate your comments, thanks for stopping by! – Hans
this sums it all up, he is rich that has few wants.
This article definitely makes readers think on how they utilize their finances. It is very informative and worth sharing for others. Readers can benefit from this especially with the tips that the article provides. Thank you for posting this article.
Hey Rafael, thanks for your feedback. Glad you got value from the article. Sometimes just getting people to think and re-evaluate their situation is all that is required to make the necessary shift to change their lives.
Great advice. It is all the more important these days that we use our money wisely. I have seen people who have a lot of money coming in just blow it and others who are always struggling to get a little bit. It can be a challenge and it is good to read articles like this.
Hey Melodie, you’re right. With all the advertising and commercials touting easy or even free money (with the asterisk most people disregard), society has become addicted to this spending way of life that is unsustainable. Still, after all the losses just a few years ago, people still continue to operate in the same way. It can be challenging which is why financial education is so important. Just learning about it and studying it can begin a change in the right direction. Thanks for your comments!
A majority so many aspiring and hopeful Internet marketers never succeed.I’ve now personally been active in Internet Marketing since the mid-nineties. In that period I’ve seen numerous Internet marketers come and go.
Some of them ‘disappeared’ because they became so successful that they choose to semi-retired. They had done well enough to be able to live the life of their dreams.
Thanks for the tips, this was a really helpful article! I also really liked the cartoon at the beginning, and your P.S. at the end – if anyone really does have the problem of “too much money” they are more than welcome to pass some this way! 😉
Hey Rosie, appreciate your feedback. I hope you too soon have the problem of “too much money”!
Right tips Hans and one important thing I agree with you is working with our income and expenses. If we are financially secure we must count ourselves fortunate because we can always think of some ways to generate more. If we think we are spending more we should start doing some plannings.
Financial knowledge, intelligence and management is very crucial for the success of any business. And financial management is art and science as it involves proper analysis and strategic thinking.
it’s the first time I am hearing for the term of financial IQ…I know for the emotional one, though.
I understand you tried to show the relevance of being financially aware of what you spend, and what you keep.
Although, I think I can consider myself finacially aware, as I never spend more than I can handle. I am never in debts, as well.
Hey Kristina, financial IQ is all about financial education. The more financially educated you are, the better you are with money, the better money habits you will have, the better your financial “emotions” are when dealing with money or money situation, and the higher your financial intelligence. It is an intelligence that can be learned and easily increased. Many people however are simply unaware of it and it’s importance in everyday life. Thanks for your comment
Great advice. In fact, to further support your point, consider the mantalottery winners who wind up filing for bancruptcy. They certainly had a lot more money, if only temporarily. I would add however, that not every one has the ability to put away 10% first. I’m thinking in particular of the extremely poor who rely on every cent to eat or even the unemployed who have nothing come in whatsoever. It’s a great practice if one does have the ability to do so. Thanks for this post.
Hey Linnea, you’re right in that not everyone has the ability to create wealth, but then again not everyone truly wants to create wealth. However, I would argue it is more a mindset than anything else. Granted, it is a whole lot easier to create wealth living in the US today than a 3rd world country riddled with corruption yet there are also countless examples of millionaires and billionaires being created around the world from all different backgrounds and countries. The first step is financial education. If there’s a will, there’s a way!
You are absolutely right about financial discipline. With many of my friends the more they earn the more they spend and they complain about having no money but they own every single product that Steve Jobs has ever launched. Yes stuff can be nice and shiny but don’t buy it unless you can afford it. And if you think you can’t afford it then you can’t.
Good point Charlotte! The cost of just about any new apple product (iphone, ipad, etc) is about the same price to start a residual income business in most cases. Classic example of choosing liabilities or “doodads” over assets. The financial statement doesn’t lie! Thanks for the comment!
A wise man once told me live on no more than $5000 a month until you have your first million (in liquid assets) then move up to $7,000 a month until you have your second million etc. That little piece of advice stuck with me (as well as diversify your income sources).
But you are 100% correct as evidenced by the flat broke lottery winners.
Great article !
Hey Joyce, that sounds like a good rule of thumb that if nothing else would stop one from increasing their expenses as their income increases. Keeping that ratio low really increases the velocity of your money and helps it compound and grow that much faster. Thanks for the comment!
Great article Hans – as I was reading your examples I couldn’t help but flash on how often we hear names of celebrities in the news who are in financial trouble or how many lotery winners eventually end up broke – all goes to supporting the lessons and advice you lay out here. Thanks!
Marty, kind of scary that we have entire shows devoted to celebrity gossip, and that so many people look up to these celebrities because of their fame and so-called fortune. They might have some money now while they’re in the spot light, but does it last? For some yes, but for many it doesn’t. It goes back to the fact that money has the power to make you rich as well as poor. But money on it’s own is not the solution to a lack of money. Thanks for the comment!
Truly, an eye-opening post. The problem with having a lot of money is you don’t know where you gonna spend it. loljk But thanks for the tips though, it would be helpful especially in these times..
Hey Jans, it’s a GOOD problem to have, right? So many people plan for the problem of NOT ENOUGH money. How their income will go DOWN when retire. How they need to just cut up their credit cards and live below their means… Why? Why not plan for the problem of TOO MUCH money? Why not envision and focus on having to learn of new ways and places to invest your extra money, of hiring additional advisors to minimize how much you legally give to the government in taxes, and planning an exciting exotic vacation, er, “work” trip?? If you don’t know where or how you’re going to spend the money when it comes in, it may never come in (because that was your plan)… Thanks for the comment
Right on Hans. You have covered financial awareness thoroughly. We have to be financially intelligent whether we have too much money or think we have too little. Both require the application of specific strategies in order to create balance. I am often dismayed by the fact that our formal education does not include the all important financial education which, I believe, should begin in the very first class of school. After all, most of us leave our educational facilities with the intention of creating some kind of future in business. Financial knowledge, intelligence and management is crucial to our business success and it just makes sense that it be taken more seriously within our school systems. Thanks for sharing this extensive post!
Hey Loren, I think it goes back to the intent of the school system. It was designed by those in power who got their because they had wealth and therefore control; therefore they had to figure out what to do with the rest of the population. Not everyone has the desire or intention to be wealthy and I think the system was designed for the 80% – to teach them the skills necessary to be good employees because that was what most would be. Perhaps it was designed that way so that the top 1-5% would have to figure out a better path on their own through persistence and character building, trial and error, to learn the OTHER way, the way of the wealthy.
Great article, Hans. Reading this reminds me of the riddle:
What’s greater than God and more evil that the Devil. The rich need it and the poor have it. And if you eat it, you’ll die?
Do you know what it is?
You’ve got me Renee. What is it?
This is really an eye-opening post. You did a fantastic job of explaining the difference in your mindset and how it can have an effect on your financial IQ. I have never thought about living paycheck to paycheck in this way before, but it is something I am going to take with me and share with others. Thanks again
Hey Tony, yeah I believe that most people would not choose to live paycheck to paycheck but rather end up there by default, stuck in a rut. However, what keeps them in that rut is misinformation, not a lack of money. By learning better money habits, by applying some financial discipline they would find their situation would change and improve even without more money. That’s the power of financial education. Like they say, knowledge is power, but financial knowledge (or education) has to power to set you free! Thanks for your comments.
Hi there. Thanks for sharing this. It’s a very interesting article. Thanks!