Step 1 was to determine your goals. Step 2 required measuring your current wealth and debt, and using taxes to your benefit.
Now we’ll get into Step 3:
Gain control of, and decrease your living expenses like crazy.
This doesn’t mean living off of cans of beans and bread, but when you think about it, most people buy way more things than is really necessary, and all that hard-earned money floats away without even realizing where it went.
Expenses MUST be lower than income, and the larger the gap between these two, the quicker and larger your wealth accumulation will be. Make your money work for you instead of you being a slave for money.
While some people consider vehicles one of their assets, this really should not be in that category. Anything that costs money is not an asset and should be treated accordingly. A collectible car that appreciates in value every year? That’s an asset. The brand new Ford Explorer you bought off the lot last week? A major expense that probably washed $10k out of your pocket the minute the tires hit the road.
Finding the same make and model of vehicle used is not usually difficult to do, and you’ll save thousands of dollars in the process. Search for a model that’s one to three years old, with 10k to 20k miles. This is a fantastic deal on a just-broken-in vehicle. And if you buy it from a dealership, the interior and exterior will be like-new.
Car loans are another major expense for most families that we consider as “normal” as a mortgage. The high interest rates will keep you in debt and will drain too much money out of your bank each year, destroying your wealth-building abilities. Do your best to buy a used vehicle that you can buy with cash preferably, and if not, at least have a very large down payment saved.
This is going to depend on your individual situation of course. Sometimes renting is more convenient when you’re young than a mortgage would be while you decide where to set roots. Living with a roommate as long as possible gives you the ability to live in a decent place while saving a ton of money. Then again, when the market is good, it’s also possible to buy a small house, fix it up a bit, and move in a couple years with a profit.
If you have a family and are established, buying is hands down the best way to save money. Make note that real millionaires do not buy homes in the Highlands. They buy something well within and below their means, possibly in the $150-300k range, which allows for a sizeable down payment and rapid pay off to cut down total interest of the mortgage.
Pay Attention to What You Buy Daily!
As a society, we’ve been conditioned to make money at a job, and spend it all on stuff. With little to no financial education in school, few of us have any idea how to really build wealth. Ask yourself honestly, what do you NEED and what do you WANT? Do you need a bigger TV? Do you need cable? Do you need another pair of identical blue jeans, or sweater, or socks when you have a drawer or closet full of things you don’t wear? Marie Kondo teaches how to organize clothing to really see what you have, how to let go of things you don’t need, and develop a true understanding of what you need and, for myself, what I definitely don’t need more of.
In 2010, this family spent a mere $30,500. So minimal spending (with some luxuries included) is possible! This family has been so successful with saving money, they achieved a very early retirement on an average income.
While the above example is an extreme case, saving 10-20% of your income can do wonders throughout your life, no matter how little that 10-20% is. If you can develop the habit of taking that much out of your paycheck every week or month, put it into a reasonable investment with a solid return rate, you’ll see that pile begin to accumulate very quickly.