Welcome to our 3 Part series on Building Wealth on a Small Salary. Over these next 3 Blogs were going to show you different situations, and give you plenty of advice, on how to build wealth even if you’re not making a huge amount of money.
The simple fact is that your daily money habits often make more of a difference in building wealth than a huge income. (Yes, making a lot more money can help, but only if you know what to do with that money.)
The good news is that it’s definitely possible to build wealth and create a life for yourself that’s prosperous and free from constant financial anxiety. So let’s get started!
First things first, you need to reverse the way you think about money, and how you use it. The average consumer spends some of the money that they earn, pays their bills next and then saves what’s left over. The fact is that this habit is completely backwards.
In order to build wealth you should be saving for your financial goals first, paying your bills second and then, if anything is left over, spending that on things that aren’t necessities.
Many people also have a habit of waiting to start good money habits until their financial life “gets easier” and they start making more money. The only drawback here is that, for most people, once they start making more money they start spending more money as well.
Most financial advisors will tell you that it’s not about putting every single penny you make away and living like a pauper. Instead they would advise you to start small but consistently and, as your financial habits improve, you can build up your momentum and repeat those positive financial behaviors.
Most consumers, when they realize that it’s not as difficult as they thought, tend to start saving more and spending less on non-necessities.
Next you need to make a plan and stick to it. A five-year plan is a great place to start, creating specific money goals to achieve over the next five years as well as the specific steps needed to get there. Some of those goals could include setting up an emergency fund, putting aside money for your child’s college education and/or saving for the down payment on a new home.
Financial experts agree that having a specific goal can greatly increase a person’s ability to save money, no matter what that financial goal happens to be. Having the goal, writing it down and making an effort to reach that goal is what really matters. It’s similar to the old saying about “life not being about the destination, but about the journey”.
Another excellent way to build wealth is simply to create financial rules for yourself and stick to them. This is known as heuristics, or “rule of thumb” strategies that you can create for yourself and use every day. Things like not spending more than $10 on a toy for your child or no more than $40 for a pair of shoes can make your daily financial choices much easier and simpler.
In fact, “behavioral economists”, people who study the economic behavior of humans, believe that one of the best ways to develop excellent financial habits is to use heuristics in your daily financial life.
You can start with something as easy as not getting a shopping cart and Walmart. That will limit the amount of purchases you make because you won’t be able to carry everything. It might sound a bit silly but it actually works, just like a heuristic (rule) about only eating out once a week or only buying only one pair of new shoes a month.
It really does work if you work it.
Well, we’re off to a good start! Make sure to come back and join us for Part 2 and more information, advice and suggestions about how to build wealth on a small salary. See you then!