HOW SMALL CUTS BECOME HUGE SAVINGS
There is no one road to wealth but you can put the odds of creating wealth on your side by following a few simple precepts.
1. Spend less than you earn.
This is often the most overlooked scenario, because many people believe it's a matter of cutting back on your current standard of living, a strategy that's almost impossible for most people. Certainly, you can affect your personal balance sheet by spending less money dining out or on entertainment. Making a pot of coffee at the office instead of buying a $3 latte will make a slight difference in your cash flow. But the big difference is usually made on the income side of the ledger.
Stop looking at your budget as a fixed pie that must be cut up into different size pieces to cover your regular bills for housing, telephone, electricity, car expenses and insurance. Instead, concentrate on thinking about how you could expand the size of the pie. Sure, you could ask your boss for a raise. But that's a less likely prospect than figuring out how you could earn more money on the side.
Take a look at how you're spending your time, as well as your money. Perhaps instead of dining out this weekend, you could earn an extra $100 by becoming a waiter or bartender. Instead of shopping at the mall, you could be a salesclerk earning some extra cash. Instead of paying for a baby sitter, you could take care of a few other children on Saturday or Sunday, freeing working parents to do their errands. Then, instead of spending the extra money you earn, you should invest it so the money can work for you.
2. Make your money work as hard as you do.
The real secret of financial success lies in making your money do the work, so you can relax. But that requires accumulating enough investment dollars so that the growth and earnings can free you from the need to punch a time clock. Many very wealthy people continue to work simply because they enjoy what they're doing. Or they redefine work to include managing their money.
Many people argue that they'll never get to the point where they won't have to return to work because they can't afford to set money aside today. But don't overlook the power of compound interest. Every worker with earned income is now entitled to open a nondeductible IRA or, even better, a Roth IRA.
3. Make sure your money is working for you, instead of against you.
Just as your money can work very powerfully for you if you make the right decisions and stick to a plan of regular investing, wrong money decisions put potholes on the road to success. What could be so important to charge today that it puts you in debt for a period far longer than the object is likely to last? Paying down current debt is the way to start on the road to building financial freedom.
4. Remember: If you don't see it, you won't spend it!
If you take a close look at your paycheck, you'll notice a lot of deductions before you get to the amount you can cash or put in the bank. Surely, there are deductions for Social Security and federal and perhaps state income taxes. It's money that's out of your paycheck before you have a chance to make decisions about it. Money set aside for wealth building should be treated in the same way. If your company offers a 401(k) retirement plan, make sure you sign up for the maximum possible contribution. It will be taken out of your paycheck automatically. (And if your company matches all or part of your contribution, failing to sign up is like walking away from free money!) The whole point is to get the money out of your checking account before you see it and spend it.
5. Create savings and investment goals.
Would you like to have $1 million by the age of 40 or 50 or by the time you retire? Set your own goals. But never set a goal you can't control. Your targets can't depend on your boss giving you a raise; they must be reachable by your own efforts. You might need to invest in yourself by acquiring more education so you can qualify for a job that pays more. You might need to take more risk in your investments, or in your lifestyle by taking on a job that pays commissions instead of a fixed salary. Evaluate the risks involved, and understand that by putting the odds on your side, you can get a larger return.
