Income — Your Most Powerful Wealth Building Tool
Many of you have gone through the calculations to try and figure out what it is going to take for you to retire comfortably. How much longer am I going to have to work before I can retire? What type of return do I need to achieve for the next 30 years? These are some of the many questions you are trying understand and find the right answers.
However the key to retirement is simple. Throughout your working years it comes down to one simple calculation: How Much Money You Make — How Much Money You Spend = How Much Money You Keep (Inflows — Outflows = Net Savings).
Whether you earn $35,000 a year or $500,000 a year, has no bearings on how much wealth an individual has. Often times the more money you make the more you will spend trying to keep up with the Joneses. All that will do is keep you like a rat on a wheel trying to win a never ending race. Live simply or within your means and use your income as a wealth building tool.
Here is a formula for how to breakdown your finances; a typical rule of thumb to follow is the 50, 30, 20 Rule. 50% of your income should be spent on your needs (IE. Rent, Mortgage, Bills, Food, etc.). 30% should be spent on wants or things you enjoy (IE. Concert tickets, trips, etc.). The final 20% and arguably the most important especially for your long term well-being is to be put away for savings and investments.
For example if your income is $35,000 annually you should try to save $7,000 a year (20% of your income). If you were to save $7,000 a year from the time you are 25 years old to the time you are 55 years old (30 Years) and earn a 10% annual return (Market Like Return for the past 90 years) — You would have over $1.1 Million Dollars to your name!
This is a prime example illustrating the importance of your income and the power of compounding interest. The more you save, the more you have to put away in an investment account, the more powerful your money will be.
At the end of the day, there really is no get rich quick scheme. It takes a lot of hard work, diligent saving, and mindful investing. You don’t need to be an MBA, a Lawyer, a Doctor or even born into money to become wealthy. Anybody can do it.
If you are tired of being a rat on a wheel going to work every day counting the clock down to every weekend just for a couple of off days before you jump back on the wheel, maybe it’s time to take a long hard look at what it will take to walk away from your job. What is it going to take to get the freedom that you’ve longed for? When am I going to be able to go on that trip to Europe or spend more time with my kids? Will I be able to buy that vacation home and be able to enjoy it?
Look no further than your income. Start saving as much as you can and start investing appropriately. The more you save, the more powerful your investments will become and the Wealthier you’ll be. All by using your income as a wealth building tool.
Like Warren Buffet said “If you don’t find a way to make money while you sleep, you will work until you die.”
Thanks for reading!