Remember this old cliche?
It’s not what you make; it’s what you keep.
How about this one?
I used to dream about the salary I’m starving on today.
Net worth has nothing to do with your annual income. It’s all about how you handle your cash flow.
Every month cash comes in and every month cash goes back out. Where is your cash going?
You must know where your cash is going before you can begin to build wealth. Are you spending your cash on “stuff” or on assets? Are you using credit cards to purchase the “stuff?”
Consumer debt, excluding mortgage loans, now stands at $1.4 trillion. Household debt is rising twice as fast as wages. The average household carries about $10,000 in debt and the average interest payment is $500 per month.
That’s $6,000 per year. Going where?
If you put that $6,000 in a modest investment returning 5% per annum, you would earn $300 in income PLUS, you’d still have the $6,000. If you used the $6,000 to leverage into a property valued at $60,000 (yes, I know where would that property be? Humor me for the sake of the example) and, it appreciated 10% you would have made a return of 100% (10% increase on $60,000 = $6,000)
What’s the better use of your cash?
Easy right?
If it’s so easy why isn’t everyone doing it? If it’s so easy why is consumer debt rising?
Because we don’t like to be denied.
Denied of the short term stuff for the long term payoff.
I like a good shopping spree as much as the next woman but, I also know that every dollar I give to Nordstrom is a dollar I won’t have available when the next great investment comes along.
The key to making good choices is to control your cash. If you do use credit cards, pay them off in full every month.
While working on my quarterly cash flow and net worth, I realized that I was spending over $100 a month on auto subscriptions that I wasn’t even using. That’s $1200 per year.
David Bach refers to this as the Latte Factor-he even trademarked the phrase. What are you spending money on that you don’t use, need or even remember? This is the easiest way to increase your cash flow.
For even more cash, limit your spending in the areas that can easily get out of control; dining out, travel & entertainment and clothing. Set a monthly budget and stick to it. As your cash flow increases, you can reward yourself with a nice CD or maybe a pretty mutual fund.
Just remember she who controls her cash, controls her future.
