The Basics of Wealth

There are a lot of finance bloggers out there. Most churn out variations of the same advice over and over hoping to hook you into clicking one of their affiliate links and purchasing something from their sponsors.

Unlike the financial fat cats peddling their so-called free advice for clicking their links, I give you this advice for free with no affiliate links.

Everything to becoming rich boils down to these two rules:

  1. Spend less than you earn
  2. Invest the difference

Spend Less Than You Earn

This is the most important part of becoming rich. Are you spending more than you earn? You won’t become rich. Are you spending less than you earn? You might become rich but you certainly won’t be poor.

View this as a mathematical equation – You can’t spend less than you earn? Then earn more.

Don’t get caught in the trap that earnings are what you make at your job. Earnings also include money from investments. The more investments you have, the more you earn. That 3% dividend from a stock fund is something that will pay you back for the rest of your life.

Invest The Difference

The media tend to portray investing as a fat cat sitting in a chair, smoking a cigar, and picking stocks out of the newspaper. Investing is much more than that – an investment is the purchase of a thing that will make you money. Spending money is not an investment. Buying a car to show off or drive around is not an investment. Buying a car so you can get to work and make money is an investment.

Think before you invest. It is easy to rationalize something frivolous as an investment. You might think a $59 wallet is an investment because it will last “forever” and “they’ll fight over it when you are dead”. Realize that this marketing and they’ll fight over your wallet’s contents, not the wallet. A $12 1000 Denier wallet (no affiliate link!) will last just as long and the $47 you save will go far in your investments.

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The Secret Of Wealth – Thrift

Thrift is an important part of building wealth. Every dollar you invest, instead of spending, grows to give you more wealth.

Don’t confuse thrift with being cheap. thrift is making intelligent decisions about your money whereas cheap is avoiding spending money to the point that it impacts others. For example, doing your laundry only when you have a full load is thrifty. Doing your laundry at your neighbor’s house to save money on soap and water is cheap.

So how do you become thrifty?

Only Buy Things You Need

Differentiate between things you need and things you want. Think to yourself, do I really need this? Often things we buy just because we want them end up being clutter that we eventually throw away.

Use Things Up

Use things until they break or are no longer usable. You might want a new bigger TV even though you have a decent TV at home. You’ll save money by using the decent TV until it breaks or is fully obsolete. Getting rid of a perfectly good item is a waste – you never get your original cost back and the money you save will grow your investments.

Take Care Of Your Things

Be gentle with your possessions, get a case for your phone, be gentle when driving your car. They’ll last longer and be more reliable causing you less grief.

Practice Thrift Everywhere

Be thrifty in everything you do. Take care of your company’s equipment, don’t get greedy when someone takes you out for a meal. Being considerate with other people’s money reinforces your thriftiness and shines your reputation.

Learn From Others

Listen carefully to the people around you and learn from their expensive mistakes. Is your co-worker complaining about how much it costs to fill up their truck’s gas tank? Perhaps purchasing a truck isn’t the best idea. Does your friend go out to eat everyday but complain about unexpected expenses? Maybe packing your lunch a few days a week isn’t so bad.