Financial success can be achieved in one of three ways:
#1 Living Below Your Means – Spending less than your net income.
#2 Expanding Your Means – Creating multiple sources of income: second job, starting a side business or converting something you are passionate about into an additional source of income.
#3 Living Below Your Means and Expanding Your Means
Living below your means is foolproof but does take more time to accumulate wealth. There are a number of ways to process financial success within this category:
- Budget Spending – Knowing where your money is going gives you control over your finances. You may find you are paying for things you are not using, such as club memberships and subscriptions.
- Automate Savings – Automate withdrawals from your net pay that fund retirement and savings. This should be part of your Spending Budget and ensures you will “pay yourself first”.
- Periodically Audit Expenses – Many expenses can change over time. Insurance costs often change. They can go up or down over time. Make sure you are paying the lowest insurance rates for homeowners, auto and life insurance. Cable and Internet costs can increase without you being aware of it. Calling your cable or Internet provider to secure the lowest fees available should be an annual process. Periodically shop cell phone plans. Increased competition in the cell phone industry is driving down monthly rates. Make sure you are not paying more than you have to.
- Purchase Quality Used Cars – New cars lose value as soon as they come off the lot. Buying good quality used cars allows you to take advantage of this loss in value anomaly prevalent in the auto industry.
- Invest Savings in Tax-Advantaged Investments – There are now many investments that allow you to defer income taxes while you are accumulating savings. Cash Surrender Value, stocks, variable annuities and money invested in IRA’s and 401 (k) plans grow tax-deferred.
- Refinance Your Mortgage and Home Equity Loans – Are you paying the lowest rate possible on your mortgage? Do you have a home equity loan with a high rate of interest?
- Use Coupons – Even the wealthy in my study engaged in this money savings habit. Why pay more than you have to on groceries or other expenses?
- Shop at Goodwill Stores – Many goodwill stores carry high quality clothing. You may have to spend a few extra bucks on tailoring, but it is well worth the additional cost.
- Downsize Your Home – For most, a home is the most expensive part of the spending budget. Downsizing into a less expensive home will save you thousands of dollars in interest, taxes and repairs every year.
- Bargain Shop – Far too many make spontaneous purchases, paying much more than they otherwise would. Shopping for bargains and taking advantage of sales events is a smart money habit.