What does it mean to be rich?
Many people think that to be rich means to own a lot of expensive things — a big house, a nice car, a fancy watch, maybe a yacht or two. While these are all signs of having a lot of money, they don’t necessarily mean that you are rich. If you have all of these things but are carrying a huge debt that gets bigger each month, then you are heading for a disaster.
Ideally you want to have a positive cash flow. This means that each month you bring in more money than you spend. Having a positive cash flow is better than being ‘rich’.
When you have a positive cash flow you not only have disposable income that can increase your quality of life, but you can start having your money work for you by investing in assets that further increase your net worth.
Manage cash better
The first step in taking control of your financial situation is to understand how much money you need to live and how much money you make. In short, you need to create a budget to help you manage your cash flow.
You can find more information in the Basic Budgeting section.
The biggest expense that most people have is debts. Financial companies are always more than happy to give out money because they can make a huge profit by charging large interest rates. Most credit cards carry an interest rate of 18% or more per year. That means that for every dollar of debt that you carry on your credit card, you are paying 20 cents to the credit card company each year. If you are in this situation you probably don’t need to be told how fast this can add up.
If you are carrying a large credit card or other high interest debt, look into ways to consolidate your debt into a lower interest loan. Consider getting a line of credit and paying off your high interest debts with you line of credit. This should help reduce your interest payments.
Increase cash flow
There are many ways to increase your cash flow. For most, the simplest approach is to talk to your manager or supervisor about how you can increase your pay. If you work for a large company then there is probably a defined career path you can follow. In general, increasing your qualifications and industry knowledge as well as taking on more responsibility can help you negotiate a higher salary. Sometimes switching to a new company can result in an increase in pay.
Reducing and eliminating unnecessary expenses can help you find more money. Consider reducing or eliminating money spent on cigarettes or alcohol. If you spend a lot on entertainment, look for cheaper ways to entertain yourself.
For the more ambitious there are many part time business opportunities that can be worked on in your spare time. These can include the following activities:
- making a blog or website and earn money through advertising and affiliates
- join a network marketing company
- learn about investing in real estate or the stock market
These kinds of opportunities allow you to create residual, or passive, income. This is money that, after putting in an initial amount of effort, you get in a recurring manner. For example, if you write a book, you will continue to get paid for that book long after you have published it.
There are many resources that can help you get started, such as Multiple Streams of Income: How to Generate a Lifetime of Unlimited Wealth!.
When you have achieved a positive cash flow there are different kinds of savings you can consider building. These can include:
- Emergency fund — generally several months’ salary. This money should be easily accessible in case of emergency such as vehicle or house repairs.
- Long term and retirement savings. Ideally you should invest in a tax deferred savings account so you also save money on your taxes.
- Children’s education fund. If you have children it is a good idea to plan early for their education. You can likely find an investment plan that is tax deferred or where the government matches your contributions.
- Vacation and big purchases such as a house or car
The easiest way to save money is to put money into your savings account as soon as you get it. If your company pays you directly to your bank account ask if you can have the money go to two accounts — one amount to your savings and the rest to your regular account.