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:
- 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?