Do you want to know the secret to becoming wealthy? I know I do. Below, is my secret formula for wealth creation.
Personal finance is a funny topic. Almost everything about personal finance is common sense, but it is amazing how many people lack common sense when it comes to their finances and make it much more difficult than it needs to be. Deep down I believe these people know all of these “secrets”, but the discipline required to take action is too much for most.
My goal here at the SoloBizCoach.com is to help aspiring entrepreneurs be able to go out on their own and create awesome businesses. If you are going to do that, you absolutely have to have your personal finances in order. The good news is if you start following the 6 secrets below, you will have mastered everything you need to know about personal finance and wealth creation.
Now, on with my 6 secrets to becoming wealthy.
Secret No. 1: Know How Much Money You Spend
You will never get your finances organized if you don’t know how much money you spend. This is the number one reason why people fail to generate wealth. If you throw money around without a clear plan for how to spend and save it, you will never become rich.
Knowing how much money you spend will allow you to,
- control how you spend your money
- stop wasting money on stupid purchases
I list this as the number one secret because is the foundation of everything else and most people who master this task will become wealthy. This is not because the other secrets aren’t necessary, but because if you have the discipline to accomplish this task, you can accomplish everything else.
Secret No. 2: Spend Less Than You Make
Hello McFly! News flash – you will never create wealth if you spend more than you make. I hate to be so blunt on this one, but there is no reason to sugarcoat this one. If you spend more than you make, you will always be in debt. However, if you spend less than you make, it is a given that you will start building savings.
If you save enough, you will get rich. If you don’t save enough, you will not get rich. It is that simple. Now, how much you can save is dependent on secrets three through six.
Secret No. 3: Earn More Money
So many personal finance blogs beat secret nos. one and two to death, all the while neglecting secret number three. It is very difficult to become rich by focusing on budgeting and reducing spending. Let’s face it, Bill Gates is not the richest man in America because he is a good saver; he is the richest man in America because he earned ALOT of money.
There are three areas where I think people should on earning more money.
- Earn more income in your career/business
- Earn more money through side businesses/other income streams
- Earn more money from your assets (investments, appreciable assets)
Living frugally is a great skill to have when trying to build wealth, but if you don’t have enough income, you will never get rich.
Secret No. 4: Buy Assets That Appreciate in Value
One of my favorite personal finance writers is Thomas Stanley, the author of The Millionaire Next Door. One of the points Stanley make in his latest book, Stop Acting Rich, is that wealthy people typically don’t waste their money on buying things that depreciate in value. While the ultra rich Hollywood types might buy yachts, $20,000,000 houses, and Ferrari’s, the average millionaire focuses on buying assets that appreciate in value.
Here are some examples of assets that appreciate in value:
- Businesses
- Equipment that can be used in their businesses to make more money
- Investments like stocks and bonds
- A moderately priced house
Secret No. 5: No More Debt
Secret number five is more of a symptom of not following the advice of secret numbers one through four. But, since this one is so important, I thought that I needed to make it its own secret. NO MORE DEBT!!
You cannot be spending less than you make if you are still incurring debt. And, if you don’t stop incurring debt, you will never become rich or increase your wealth.
There are only two times when I think that it is okay to incur debt – buying a house and investing in your future, e.g. to pay for college or to build a business. But, even in these instances you need to understand that debt is dangerous – very dangerous.
In fact, debt is so dangerous, that I think that any person trying to start a business should not go into debt to do so. For a young businesses, positive cash flow is extremely important. Incurring debt will make positive cash flow very difficult.
Secret No. 6: Don’t Pay Uncle Sam More Than Required
Did you notice that I said “required”? I am not advocating breaking the law here, but I am advocating that you take advantage of every smart tax break you can. And, there is no better way to do this than to start your own business.
But, as long as you are abiding by the law, don’t pay Uncle Sam one dime more than you have to!
Here are some things that you have to be doing to save money on taxes:
- Max out your retirement savings – IRAs, Roth IRAs, 401(k)s, SEPs
- Take advantage of home mortgage interest deductions
- Start a business and deduct your business expenses
- Invest in tax advantaged investments
10 Great Personal Finance Articles You Should Read
There are so many great articles out there on personal finance. If you would like to read some other great articles on how to become wealthy, here are some of my favorites. These articles will reinforce the 6 steps to becoming rich above.
- Get Rich Slowly – The Road to Wealth is Paved with Goals
- I Will Teach You to Be Rich – Earn More Money
- Coachradio.tv – Listen to 12 New Business Success Stories
- Bible Money Matters – 5 Habits of Millionaires
- Len Penzo – 8 Reasons You Are Getting an F in Personal Finance
- Man vs Debt – 3 Reasons Why Most People Will Never Earn More Money
- Fiscal Geek – How To Run Your Finances Like a Fortune 500 Company
- Generation X Finance – 9 Financial Tips for New Graduates
- Budgets are Sexy – My 4 Favorite Pieces of Financial Advice
- Frugal Dad – How To Become a Millionaire in 10 Years
- The Simple Dollar – Spend Less Than You Earn
What do you think are the most important secrets to wealth?
Great article, Fred. I’m honored to have Coach Radio included in your list. I’ve added so many more stories lately and have always been inspired by hearing how others are succeeding.
Thanks for all you do!
Thanks for leaving a comment Justin. The praise is mutual. I listen to your CoachRadio.tv podcast every week. I especially like you interviews.
That’s a great post, Fred.
I think the issues that affect most people are spending less than you make and buying assets that appreciate in value.
Society here in the states is a consumer driven one that really doesn’t encourage the art of saving and conservative spending. I personally would like to see subjects and classes taught in elementary and high school. I don’t want to put the burden of money management on the schools, but at the same time, don’t students learn how to drive in school?
Thanks in advance for the all the great information you’re going to provide.
Kevin,
I definitely think that schools should teach personal finance. I can’t think of a much more important skill/habit. Money issues are probably the biggest reasons for crime and divorce. Society would be much better off if people exercised good money management.
Thanks for stopping by and leaving a comment. BTW, I love your blog. Keep up the good work.
I believe that BasicAccounting/MoneyManagement should be at least an elective course in High School. I actually consider it more important than Home Economics or Shop.
Hey, Fred, great post! You’re right, so much of it really is basic. But like weight loss (eat less, move more) it’s somehow harder to put into practice than to understand. The discipline and consistent action are the key to wealth in my opinion.
I’m not wealthy yet, but I started the year with no savings, a goal to save a quarter of our (quite low) income, and determination and now have $4,600 saved. I’ve made it through secrets 1 – 3, and Thomas J. Stanley is on my financial bookshelf as well. (You should add an amazon affiliate link to the book – see #3!)
You are so right about it requiring a ton of discipline. I was not trying to say that good money management was easy, but it is not really that complex.
Congratulations on saving $4,600 so far. That is excellent.
Your list is simple & TRUE. But don’t forget;Start YOUNG-As Albert Einstein said, compound interest is the most powerful force in the universe!
Barb,
Great advice about starting young. I wish I did. But, the good news is that you will always be better if you start today than in the future.
I think that where most of us fail is right at the beginning with the very first one. We don’t know how much we spend because we don’t track it.
Number 3 is getting hard these days, but I don’t expect to earn more through my employer. The benefits are great though.
Hi Fred, I agree that most of us know what we “should” be doing financially, but don’t often do that. But I have to disagree about discipline on its own. As with the weight loss example from The Saved Quarter, we know what we need to do, try hard, and frequently fail. My take is that when we understand why we relate to money the way we do, then we naturally change our behavior. Discipline can certainly help, but not without awareness and compassion first.
- Carrie
Carrie,
Thank you so much for stopping by and sharing your thoughts. I definitely agree that understanding why we are making the decisions we are is very important. In fact, one of my favorite personal finance books is Your Money or Your Life which focuses a lot on people’s relationship with money.
Investing in an accountant made a huge difference.
Instead of doing my tax returns – and paying too much – he clawed back quite a lot!
Ivan
Ivan Walsh recently posted..Aweber v MailChimp – which is best value for money?
I am so glad that I am not doing my own taxes now. I love having an accountant. Well worth the money.
Hi Fred, In a place like Bali, I am amongst the super rich and another type of person…the really rather poor, who likes to live and act like they are rich:-) I’m learning to tell the difference between the two, but it takes a sharp eye, lol
The biggest lesson for me has been to become exactly aware of what I’m spending. It’s easy to keep track of the big expenses, but it usually in the small, unessential but repeat expenses, that you can make dramatic savings. Another thing for me has been to not try and live within someone else’s budget or standards. Live within your means, and not another’s. I read a while ago, they we should be focusing on acquiring assets and not liabilities and this really struck a cord with me,hence why I hardly own anything any more, and don’t intend to acquire another thing that decreases in value with every passing day
Thanks for adding to the conversation Stacey. You are so right about living with your means and not someone else’s. If you haven’t read Stop Acting Rich by Thomas Stanley, I highly recommend it.
Yet another book added to the kindle reading list, it’s growing a little more every day, lol
Stacey Herbert recently posted..You Can Run, But You Can’t Hide: Let’s Talk About Pain!
My reading list is so looooooooooooooooooooonnnnnnnnnnnnnnnnnnnngggggggggg.
Sounds so simple doesn’t it? I am a big advocate of the spend less – make more and no debts if possible. Many looked at me like I was mad years ago when I paid off that maxed out credit card and went to living on cash. If I didn’t have it in my purse, well, I didn’t get it.
In France credit is tightly controlled. Credit card limits are so low it’s almost insulting coming from markets where I could buy a flashy sports car on my limit. But it’s a good thing. Being self employed also means store cards and other high interest financial products are unavailable!
Doesn’t bother me. I’m still often surprised by the number of people who live over and above their means and wonder what went wrong.
(First time over here and will be back! )
I am so glad that you stopped by Ameena. I can’t wait to get to know you better.
My wife and I also made the decision to pay off all credit cards and never use them again. Life is so much better without credit card debt. Now I just need to pay off my law school debt.
It’s interesting that credit is so tight in France. I did not know that. Thanks for sharing.
Your list is simple & TRUE. But don’t forget that;
You don’t have to wait until you have enough capital before you start that business. You can start small and grow your business to the desired level. If you said until you have enough capital before start that business or that idea, you would end-up doing nothing because you may never get enough capital to start big.
ALWAYS THINK BIG, BUT START SMALL.
Great advice Kenny.