Financial Expedition, Author at Financial Expedition - Your Journey to Financial Independence

Stop Keeping Up with Joneses

If you are truly going to change your habits and your spending, the first thing you need to do is get rid of any idea that you have to somehow keep up with your neighbors’ spending or their habits. This is going to be hard. I know when you see your neighbor drive up in a new BMW and you look at your 6 year old car, your first thought is, “wow. I could get a new car like that too.” JUST STOP HERE!

I can tell you right now that I have had neighbors who bought it all. New cars, boats, ATVs, trailers, RVs, you name it. They made close to $500,000/year and saved none of it. If you really want to be wealthy or you want to be financially free, you cannot start your journey with the idea that you need to buy everything your neighbor has. It just doesn’t work in this plan.

If you have a nice car and you pay off the loan, there is no need to run out and buy another car. You are most likely saving $400 – $500/month. Do you honestly think anyone you know is thinking “Damn, my buddy Bob has a 5 year old car. He needs to upgrade. He needs a nice new car because if he doesn’t get one I am going to think less of him.” Now, if you have a 15 year old car with 200,000 miles on it, it might be time to look for something newer as you don’t want to deal with the unexpected repairs. I had a paid off Jeep Cherokee that I owned from college for about 9 years. I think it finally kicked it at 175,000 miles.

Speaking of cars, there is no way that you should ever purchase a brand new car. First off, no car increases in value over time. The minute you drive that shiny new car off the lot, you are losing 10% or more of its value. From that day on, the more you drive and the older the car gets, the lower in value it becomes. In other words, cards are a money suck. They are a liability and high car payments prevent you from using your money to invest. I bought an SUV used. Brand new, it had a sticker price of just over $65,000. With just over 35,000 miles and 2 years old, I was able to buy the car for $37,000. This is a 43% savings! Just because someone else drove it a couple of years. When you factor in taxes, it’s closer to a 45% savings. For me, this was an expensive buy, but I love my truck. If you are starting out, I recommend finding as inexpensive car as possible and getting your car payment down as low as possible or even buy a used car for cash so you don’t have a car payment. Every extra dime you have can be used for savings and investments that will grow over time.

On top of cars, there are trips or clothes you can buy, home renovations and other things constantly popping up. You have to realize one thing. If you invest money today into something like real estate and you invest $10,000 at 7% per year, that comes out to $58 in free money every month. Remember that internet subscription you had at $60/month. If you paid that with your interest gained, that internet subscription would be FREE! If you invest $100.000, you could generate $580/month at 7%. So, that money could cover: a car payment, internet service, cell phone service, nails and probably hair every month. All FREE and paid for with interest from money you SAVED.

All you have to do is ignore the feeling that you have to keep up with everyone else. Focus on your own finances, your own savings, your own investments and the money will come. For all of those people making $500,000 a year and saving nothing, the minute something happens and they lose it all, they will wish they had read this blog and put that money into passive income investments instead of wasting it all.

Power of Goal Setting

One of the most powerful tools you have in your arsenal is the power of thought and focus and drive. If you truly want to change your circumstances and you want a better life for yourself and your family, you really can make a change by simply creating goals and figuring out ways to achieve those goals.

I lost a ton of money in the stock market trading on margin (borrowing money I didn’t have to invest in stocks) and the one stock I had (not diversified) went into the toilet one day. Right before they were going to announce earnings, they announced the CEO was doing shady deals and was fired. The visionary of the business was leaving the company.

I lost over $80,000 in a few hours and $100,000 overall. We were renting a house at the time and looking to buy a home for the family. I had a wife and two kids to support and pretty much lost almost all of the money we needed to put down on a house down payment. I sat in the kitchen that morning with my head in my hands and dreaded that call to my wife. What came out of that day was a spreadsheet with a monthly goal for each month to save money and cut spending. My goal was to get it all back in one year. My wife and I went through our expenses, cut the shopping and eating out and I busted my tail on my business. I was able to see each month the amount of money I lost coming back. I almost got it all back by the end of the year and took another two months to get back to even. We were able to buy the house we wanted by the end of that year. I hadn’t saved that much money in a year I don’t think at any other time in my life. I followed up on more leads, got more business from existing clients and made sure we didn’t spend on things we didn’t need. We still went on vacations, but they weren’t to exotic places and we achieved our goal.

What can you take from this example? What are the things I learned during this time?

How to create a simple plan using a spreadsheet and create a goal
Work with my partner to review our expenses, cut back on what we didn’t need and only focus on the necessities
Get creative with how to increase revenues for my business – increase prices, market to existing clients, follow up on every single lead
Continue to focus on my family with events that allowed us to be together, but maybe not trips to Hawaii

When I was done with the exercise, I maintained increased business revenues, bought a house, spent less and had more money to save. You can do the same if you put your mind to it.

Every single person has a different circumstance and some are in better financial situations than others, but at the end of the day, it’s up to each individual person as to how determined they are to reach their goals. People who have had a more difficult upbringing have dealt with the pains of poverty and might persevere harder than someone who grew up in the middle class neighborhood and didn’t face as many harsh realities. No matter what your circumstance, if you want something, you just need to be determined to get it.

The power of setting a goal will start you on your trek. Maybe your goal is to buy a new house or create enough passive income to retire early. Whatever your goal is, make it specific. If you are trying to buy a new house, how much do you need? If you want to generate passive income, how much do you need on a monthly basis and then how much would you need to do everything you ever wanted to do in life? Having a specific number is important because the tools and resources in this blog will track those numbers every month and year. And as you see your numbers increasing, you will change your habits and your spending and your saving to increase the numbers faster.

Most important, make the goal ATTAINABLE. Don’t start with a goal of passive income of $100,000/month. If you get to $500/month, you might start to get overwhelmed with the feeling you are never going to hit your goal. If your goal is to buy a house and you’re starting at $1 million, you might want to temper your expectations.

On a daily and weekly basis, you will start to think differently. At some point, as you follow this blog, your money will be automatically moved to investments and your spending will stabilize so the one thing that you can do is to look for more opportunities to generate more money in your job or through side gigs or by starting a company. As you generate more income, you will automatically save more or put more aside for investments. Just remember, NEW MONEY IS NOT “FREE TO SPEND” MONEY. You were doing just fine with the old money so just wasting the new money on spending instead of investing will stop your journey up. You’ll just move sideways.

When you reach your goal, there will be a sense of accomplishment that is unparalleled. Trust me. I’ve been there and it’s amazing.

Step Ten – Start a Company

This is the last step in the Basics section. You should have enough knowledge at this point of the blog to get started on your journey to financial freedom. Starting a business is a way to catapult you into wealth faster than anything else (outside of winning the lottery).

FREEDOM FROM THE CORPORATE WORLD

Running your own company allows you to have something you will never have at a job: FREEDOM. Owning your own business company allows you the freedom to not have to report to someone, to not have to rely to someone for your financial needs, to schedule your time with your family and friends however you want.

For me, my freedom from the corporate world started when I was 29. I had been working on my side web design company already for about 4 years and started making enough money to pay my bills. To be clear, the money I was making from my business was not even close to as much as I would make at a job, but it didn’t matter to me. I was making enough to pay my bills and become FREE of the corporate world. This is not to be confused with financial freedom that would allow me to stop working all together, but a freedom from working for a-holes who fired me or yelled at me for taking long lunches.

Is starting a company scary? Well, if you leave your job and put all of your life savings into a company then I would say “shit. that’s pretty scary!” Unless you have something that’s going to change the world, putting all of your eggs in one basket is pretty freaky and I hope you know what you’re doing. I had to work full time jobs for years until I built up my company to a point where I could leave my job.

So why should you give up the relative security of a job to start a company? Not only can you build something that could be valuable and you could sell at a later time for your retirement, but there are tons of other benefits to owning a company.

FINANCIAL BENEFITS OF STARTING A COMPANY

As I mentioned very early on, the United States was created to allow for entrepreneurs to come to a place where smart and hard work would lead to the American Dream. America has rewarded innovation more than any other country in the world and the smartest and most innovative people have flocked to America for decades. Anyone can succeed in America if they work hard and work smart. The best part of America is that it rewards people who start businesses. Why is that? Well, when people start companies, they put other people to work. The companies and the employees generate tax revenue to local, state and federal governments and the more companies that are started, the more tax revenue they get.

The financial benefits that the government give to entrepreneurs are enormous and incentivize people to start their own businesses. The following are some of the benefits of owning a company:

After profit taxes
Tax write offs
Tax deductions
Depreciation

The government allows you to write off expenses for a business and you don’t pay taxes on those expenses. You only pay taxes on what the business earns AFTER expenses are paid. For example, your business generates $100,000 per year in gross revenue (the amount that you collect from all of your clients). Then you have expenses:

$300/month – Gas to drive around for clients
$200/month – cell phone needed to talk to clients
$100/month – internet connection to run invoices, etc
$50/month – lease a computer to do all accounting and quotes
$1000/month – staff to help with the business
$500/month – eating out/entertaining clients
$500/month – portion of your mortgage or rent for a room in the house used to do work (for example, if you pay $2500/month in rent and you use one room for work, that sq. ft. of the room can be a business write off)
$200/month – office supplies
$100/month – utilities

Add it all up and the above equals $2950/month or $34,500 per year. After subtracting the yearly expenses from your $100,000 of gross income this leaves a profit of $65,500 that you would pay taxes on. There are many other expenses like child care or health insurance that you can add to the above to lower your profit after expenses even more. Ideally, you would have enough expenses to lower your taxable profit as low as possible. I am not an accountant or CPA and you can’t get crazy with deductions (like deducting an entire mortgage payment for your business) because the IRS will come calling.

The main point of the above exercise is that there are many financial incentives to starting your own business and many ways to write off expenses from your business so you are paying less in taxes.

If you had a job that paid you $100,000 in California, approximately 30% of your salary goes to the government immediately. So, you are left with $70,000 in after tax money. THEN, you are paying for a cell phone, gas, entertainment, utilities etc. You are left with money that can be used for entertainment and travel and investments. In my example above, many of your every day expenses can be written off to your business and then you are paying taxes on $65,000 (30% = $19,500 in taxes vs. $30,000 in taxes at your job). Since you have already written off many of your normal expenses to your business, you have more after tax money to invest.

This is the biggest financial benefit of owning a business.

Step Nine – Multiple Streams of Income

In order to become wealthy, you will need to have more than one stream of income. If you have a job, that is one stream of income. If your spouse has a job, that would be a 2nd source of income. However, the entire point of this blog is to get you out of work and living a financially free life where other things are creating income for you. As those other income streams grow and cover the cost of your living expenses, you can rely on your personal income streams less.

WHAT ARE EXAMPLES OF OTHER STREAMS OF INCOME

By this time, you should have determined what your goal is for passive income. How much money do you need on a monthly basis to be able to cover all of your necessities? For me, I would like to have $20,000 per month in passive income. If I didn’t have kids in the house, I figure I could live on passive income of $20,000.

We have discussed how investing money into different things can generate interest and that interest can be reinvested to create more money for you, but all of those examples really imply that you are working and money is being pulled from your paycheck each month and reinvested and you really aren’t going to see that money until you retire. So how can you get more money today?? How can you supplement the money you earn at your job with extra cash now? Here are some ways to create more streams of income:

Real Estate investment
Side gigs
Start a company

REAL ESTATE INVESTMENT

Real estate investment provides the ultimate in passive income. Everyone needs a place to live and everyone who doesn’t own a house, pays rent somewhere. There are different kinds of real estate investment, but we can start with residential real estate.

Real Estate Investment for The Youngsters

If you are in your 20s and you can put together enough money for a rental property, you can rent rooms to roommates or friends to help carry the debt burden. If you play your cards right, your expenses after renting out rooms could be far less than what you were paying for rent before you bought the property.

Here’s an example. Let’s say you live in Pittsburgh, an up and coming investment real estate area. You were living in an apartment and paying $800/month in rent. I was able to find a number of homes that cost about $250,000 and are 3 bed, 3 bath homes. If you are able to put down $25,000 for the home, you would have a loan balance of $225,000 and at 3.5% interest, this would cost $1,010 per month in mortgage payments. There are going to be some other fees including:

Mortgage: $1,010
Insurance: $150/month
Property Taxes: $210 (1% of the purchase price divided by 12 months)
PMI: $187/month (based on 1% of the loan amount per year)
HOA: $100/month
TOTAL: $1657/month

Since you only put down 10% of the purchase price, you are stuck with the monthly PMI (Private Mortgage Insurance). Private Mortgage Insurance is a separate fee the bank wants you to pay because you don’t have enough skin in the game when you only own 10% of the property. Almost every loan requires PMI unless you put down 20% or more. The average cost of private mortgage insurance, or PMI, for a conventional home loan ranges from 0.58% to 1.86% of the original loan amount per year, according to Genworth Mortgage Insurance. In this case, we estimated your PMI at 1% which is a pretty big number each month.

These are just random estimates and homes there might not have HOA. After you review the property and the fees above, you will have a solid idea as to your real costs. The next step is to go to Zillow or other RENTAL web sites and determine what the fair market rent is for houses like this. If the rents are around $1900/month, you’re looking good. $1900 – $1660 in costs is $240/month in positive cashflow. Now, let’s assume you were paying rent of $800/month and now you move into the property and charge $600 to your friends for rent for the other two rooms. 1) BONUS – you get to live with some friends, and 2) they would pay $1200 of your mortgage and you would be paying $457/month to own the home. You actually saved money by purchasing the home.

Once you move into the property, you need to start watching the housing market. If the housing market increases, you can try to refinance and get a lower mortgage rate and, if the property has increased 10% in value, you would then own over 20%, you would get out of the PMI payment which would provide even more profit. If you have a good payment history and interest rates are lower, you should be able to get a deal. In this scenario, purchasing a house that needs some work done is also a great idea. If you are handy at all, you can move into a fixer and add some paint and redo the floors and get the value up so you can get rid of the PMI. Maybe one of your friends can help out with the renovations.

While you are living at your new house, you can put away any extra savings you gained by having roommates and start looking at buying another property. Let’s assume you were able to refinance the first house and lower your payments AND remove the PMI. How would that look now:

Mortgage: $950
Insurance: $150/month
Property Taxes: $210
HOA: $100/month
TOTAL: $1410/month

If you could increase the rent by $100 to $2000, now you’re looking at a monthly passive income cashflow of $590/month. What? Passive income of almost $600/month? Remember that not only are you getting passive cashflow, but two other things are happening: 1) someone else is paying off the monthly debt for that property and 2) the value of the property is going up. If you did any fixes at all, that property is already worth more than what you paid for it.

If you take that $600/month and save it for two years, you will have $14,400. All you need is another $10,000 to buy your next house at $250,000 and do it all over again. If you really put your mind to it, you can probably generate the cash to buy another house within a year.

Real Estate Investment for the Family Folk

If you are older and have a family, let’s look at how you can do this. If you have been following all of the steps outlined in the beginning of this blog, you should be putting away some money into investment accounts that are now compounding interest. You should also have an emergency fund to cover your family’s expenses in case of an emergency.

Now, let’s assume you or your wife get a raise or get a bonus. One of the goals you can create might include buying an investment property. In many cases, you need at least 10% of the purchase price to put down on that property. One option is to find a house that needs some work. You can move your family into the house and start fixing it up. Your goal should be to move in with the idea of renting it as soon as it’s fixed. If this is your plan, you need to look at what your payments are and expenses and what you can get for rent.

Every single time I have purchased a property for my family to live in, I run the numbers to see if I can make money if I move out and rent the house. Why go through this exercise? What happens if I run into an emergency and I have to downsize? Wouldn’t it be great to move my family into a lower cost situation while I rent the house I live in for a positive cashflow? In this scenario, I am not forced to sell the house, I make a little bit of money each month, the tenant is paying off the loan on the house AND I have time to figure out my emergency situation. If I run the numbers and find that the house will be a negative cashflow if I rent, I would either look for a different property or figure out a way to improve the house for higher rent down the road. In my current home, I was sitting at a breakeven point for rent the day I moved in. Then, two things happened 1) interest rates dropped from 4.25% to 3.6% to 2.875%. In addition, rents in our area went way up. So, I refinanced twice and if I moved out today, I would go from break even on rent to a positive cashflow of almost $900/month.

There are many ways to do real estate investment and generate revenue. So, if you have maxed out your salary and you are comfortable with your savings, but you don’t have a lot of extra cash, how can you come up with a down payment on a house? One way is to start a side gig.

WHAT ARE SIDE GIGS?

Side gigs are jobs that you take outside of your normal 9 to 5 day job. Some examples can include Uber driver or services for people like painting, landscaping or marketing. Side gigs are not passive since you are doing more work, but they do provide another source of income to save toward your goals.

If you are an expert at something like marketing, why not offer that service to other companies? If you are really good at customer service and you’re a stay at home mom, there are many jobs for customer service reps that allow you to work at home and have flexible schedules. If you are good at accounting, EVERYONE needs an accountant. Post your services on Craigslist and grow a small clientele.

A journey up a high mountain is not an easy task. Many people start the journey and turn back because they can’t handle the terrain or they didn’t prepare. Maybe they were satisfied with climbing halfway up the mountain. If you are “comfortable” saving money in your 401(k) and you have a plan to work for 30 years and retire on the money that has been compounding, that’s not a bad plan. You can live comfortably each day knowing that you have a plan and your nest egg is growing and you will be taken care when you are ready.

This is the part of the journey where you will make some time sacrifices to make some extra money so you can put towards cashflow investments that will allow you to retire earlier, that will generate passive income so you can do more in retirement and maybe even have more time to do more with your family SOONER than in your 60s.

If you are serious about investing and really getting to the top of the mountain, you will need to take on extra work with a goal of putting all of your extra money into passive income investments.

My Journey in my 30s

I made the mistake of squandering all of the money I earned in my 20s AND through my mid 30s. I had some money in retirement accounts by the time I got married (for the first time), but it really wasn’t a lot. It was at age 35 that my life and my financial life would change forever. I had no kids and was traveling the world in my early 30s when I met a girl and she had kids (yes, plural). When I realized that we would be settling down, it was obvious that we weren’t going to live in my 3 BR condo so all of the going out and wasting money had to stop immediately. It meant I had to make enough money to take care of a family and save for our future and more immediately, a home where we could live (did I mention her mom was moving in as well?)

The minute I changed my mindset and actually had responsibilities, everything changed. I looked at my crappy financial picture and said it’s time to start saving and getting rid of my debt. It’s time to change my spending habits and focus on being able to take care of a lot of people and not just myself anymore. At the time, I was living with a roommate knowing I had about 9 months to figure all of this out and how to finance a home that we could all live in and be happy.

Leading by example, I paid down as much of my debt as I could as fast as I could. My web business was generating about $150,000 per year of which $100,000 was profit so I had some money to work with. I stopped eating out, going to bars, spending on clothes and looked at ways to save. I had a small condo with three rooms and one roommate. I brought in another roommate to cut down on my mortgage expense.

The period we’re talking about was in 2009 right after the big real estate collapse. On one hand, it was great because homes were going into foreclosure left and right. On the other hand, getting a loan when you were self employed was literally impossible. I was able to do two things over the next 9 months. The stock market was in shambles so I invested some money into beaten down stocks like Bank of America (trading at $5 per share) and into some other stocks. Through those investments I was able to generate $20,000 in profits. From the profits of my business and reduced costs from my mortgage and spending, I was able to put away about $7,000 per month. Over the next 9 months, I was able to save up approximately $70,000.

When the 9 months was up, I was astonished and super pissed off at myself for the first time. I was able to save and put away that much money in 9 months? I was pretty blown away by my own accomplishment while simultaneously pissed off that I had saved nothing nor invested anything up until that point. While I squandered my money in my 20s and 30s and saved close to nothing, here I was with a goal and a plan and a drive to reach that goal. Unreal. If I just had some goals earlier on, I would have been much farther along in my path to financial freedom.

My fiancee at the time and I were able to find a house in north county San Diego for $547,000. The home was in foreclosure and many other homes just like it were selling at bottom dollar. My timing was great at that time and my goal was to put down 20% to get rid of the PMI. I also needed some money in an emergency fund in case of an emergency. I did borrow some money from my parents to put down on the house and a few months later, we were in and I had a roof for everyone. Here are some great things about that house:

It was inexpensive enough that I was able to provide a roof for everyone and more importantly, it allowed me to save extra money to pay off my parents and not have to stress about a mortgage payment that would rule my life
I was lucky to purchase the house when the market was at its lowest. I knew that it could only go up in value. That said, over time, almost all real estate increases in value over time so even those people who bought their homes at the top of the market in 2008, were rewarded in 2021 with insane housing values. While your house is probably your largest investment, don’t get caught up with the value. It will go up and down. The one thing you should keep in mind is that you can always look at interest rates or ways to cut down on the monthly expenses for the house.
When I bought the house, I knew that the monthly payments were low enough that if I had to move, I could easily rent the house and make positive cashflow. I purchased the house near a military base and the officers that worked about 1/2 mile away had a housing allowance close to $3,000 per month and some would receive $4,000 per month. My house expenses on a $417,000 loan with a low HOA and property taxes came to about $2,200/month. My worst case scenario if I had to rent that house out was a positive cashflow of $800 per month.

KEEP YOUR ASSETS IF YOU CAN

The best part of the story? If you have been paying attention, I owned a condominium in Orange County. I could have just sold the condo and used that money to put down on the house. The condo I had for 7 years had equity and was cashflow positive from the rent. At that time, the housing market was as low as it could be, so while I would have been able to get some cash out of the condo, the value of the property was low. My goal was to generate enough money to purchase a new home AND keep the asset I had generating money. Was it hard? Yes. But at the end of the year, I reached my goal and I had purchased a home that was far below value in bankruptcy and another property generating some positive cashflow.

WHAT CAME NEXT?

I moved into that house and got married and my wife and I had a baby boy. It started out great. Into my late 30s, I started focusing on setting up retirement plans and worked on budgets so the family would be taken care of and we could travel and do fun things and still save money for retirement. There was only one problem. My wife didn’t believe in budgets or controlled spending or any of that saving stuff. No matter how hard I approached the topic, she felt that any type of budget was some sort of “control” issue. What was supposed to be the beginning of an amazing family dynamic became the most challenging time of my life. We had an American Express credit card that had to paid off every month. I stayed at my office late and tried to figure out how to pay off a credit card that was 3x or 4x as much as when I was living by myself. To make matters worse, my wife lost her job and stayed home and shopped more. It was not awesome.

Data released by financial firm TD Ameritrade found that 41% of divorced Gen Xers and 29% of Boomers say they ended their marriage due to disagreements about money. This is where your financial journey can be the most affected. When you decide that you want a life of financial freedom and you don’t want to work until you’re 65, you absolutely must have a partner who can work with you and not against you. How can you save money when your partner is spending it and doesn’t have the same goal as you? This is where the disagreements come in and fights and then stress. Marriage wasn’t fun anymore. I sat in my office day in and day out trying to think of ways to pay my bills and generate more income to save, but my wife kept spending more and more. I started to have some mental breakdowns as I couldn’t keep up the monthly spending much less saving for anything.

I’m pretty sure you can all guess what happened next. Bye Bye spending wife.

Step Eight – It’s Time to Evaluate

By the time you reach this step, things should be very clear to you.

You know what your income is
You know what your expenses are
You have taken the time to cut expenses you don’t need and paid down your bad debt
You have created an emergency fund and have enough to survive for 4-6 months without a job or income
You have started to put your money into investments that will generate interest

The knowledge you now have to continue on your journey is invaluable. The only problem here is going to be time and generating enough money to invest to be financially free. This is dependent on where you are in your life and what your goal is for monthly cashflow that you need to live on today and in retirement.

In my previous steps, we discussed the difference between net worth and passive income and cashflow. The net worth number means nothing if you don’t have enough passive income to pay all of your bills now and then also in the future when inflation increases, housing costs increase, healthcare costs increase and so on. To be honest, your net worth number is cool, but having enough passive income to pay your bills is far better.

HOW MUCH DO YOU NEED TO REACH YOUR GOAL?

This is where you need to figure out and determine what your investment needs to be to reach your goal. In the last Step, I gave you an example of a couple that was able to put away $1,000 per month for 10 years and generated a total amount of about $172,000. Now, let’s assume that couple started at age 50 and now they are 60 and considering retirement. If they kept that $172,000 in the real estate account generating 7% interest and got paid every 3 months, they would receive $1,003 per month or $3,012 every quarter. This was a couple that had $10,000 in expenses every month. Assuming they didn’t take the principal out of the investment (the $172,000), they would not be able to live on this amount.

I have been using an example of 7% interest as an example, but most experts will tell you that in retirement, you will have your money in far safer investments that most likely generate closer to 4% interest. That’s even worse for the 60 year old couple because it means their $172,000 is only generating $573/month.

I know this sounds depressing, but I am hoping that most of the people reading this blog are not in their 50s and who are just trying to start saving now. The most important thing you have in investing and being financially free is time. You really can’t wait any longer. That said, if the 50 year old couple was making $120,000 a year in after tax income and was able to cut their expenses down to $3,000 per month, here is one more example:

$1,000 rent
$750 food
$300 shopping
$100 gas/car expenses
$500 entertainment
$0 credit card payments
Total: $2,650

The couple’s kids have moved out and are on their own and they have downsized their living expenses and currently need $2,650/month. This is a far cry from $10,000. I am going to assume that couple has $50,000 in savings. That couple making $10,000 per month now puts aside $7,000 per month. So, starting with $50,000 and $7,000 per month over 10 years at an average rate of 7% interest compounded annually, the couple would have $1.34 MILLION in investments. Wow. If that couple keeps the principal investment in an interest account in very conservative investments that generate 4% interest per year, that would be $55,650/year or $4637/month. Add in some money from social security and this couple would be generating about $5,000/month with their $2,650 in living expenses.

As bad as your situation might be, with DEDICATION, FOCUS and a GOAL, you can reach a point where you will be financially secure.

MORE EXAMPLES BY AGE

My biggest regret is that I didn’t save much of any money I earned from my 20s through my mid 30s. If I had some online tools that tracked my net worth and I could see what I was spending, I would have saved more and probably been on a house on the beach by now. The good news is that I did start in my 30s and started to understand that I had to change my habits.

Depending on what age you are and when you want to retire will determine how much you need to save to reach your goal and how much you need to invest on a monthly basis in passive income investments. Obviously, the closer you get to retirement and the less you have saved, the harder it’s going to be to save enough.

Start Saving Immediately – In Your 20s

If you are in your 20s and you’re reading this and you have no wife or kids, now is the best time to start your journey. Figure out your expenses and your income and start saving. You hopefully have a job or some sort of income. If you put aside $300/month for 45 years at 6% interest (as an example), you would have $1,031,000. If you save $400/month, you would have $1.37 million. It’s basically $200 for each check.

Saving in Your 30s

As time grows shorter, you have less time to save which means to hit your goals, you would need to save more. In your 30s, you should have a career path and been in a job long enough that you can save more toward your goals. If you save $500/month for 35 years, you would have $830,000 assuming a 7% annual interest. If you save $600/month, you would have $996,000 and if you save $700/month you would have $1.16 million.

Did you notice something about these two examples? The 20 year old saving HALF US MUCH as the 30 year old was able to save more over the additional 10 years than the 30 year old saving twice as much with 10 less years.

This is power of compound interest!

You might be asking yourself.. well, how much are you saving? Meaning me. My wife has an amazing job and makes $100,000/year. We have maxed out every one of her tax free deductions (more about this later). She has a 401(k) where money is deducted each paycheck and none of it is taxed. It goes into an investment fund and the money grows tax free until we decide to pull it out of the fund which can’t be accessed until after age 59. The best part is that her employer matches up to 3% of her donation. So, she gets free money from her company on top of the money she puts into the retirement account and none of the money is taxed until it’s withdrawn. The max donation any individual can make to a 401(k) is $18,000 per year.

For me personally, I have a company that is organized as an S Corporation. This allows me to have a retirement called a SEP IRA where the company can put money into a retirement account for me. I am allowed to donate up to $54,000 per year to put into a tax-free retirement account. I currently put aside about $2,000 per month that is automatically withdrawn from my business account to the tax free investment account. So, between my wife and I, we are putting aside over $4,000 per month (when you factor in her company’s match) automatically. I don’t see the money as it’s just withdrawn each month.

When my wife and I married about 7 years ago (2nd wife btw), she had no retirement savings and I had about $20,000. Over the past 7 years with maxing out her retirement accounts and deducting money for my SEP IRA with the investments growing, we were able to save about $350,000. Between the two of us, we started basically at age 40 with $20,000 and now are on our way to greater wealth. If we had both saved earlier, we wouldn’t have to put so much money aside now, but the point to this entire blog is that it’s never too late to get started.

Step Seven – Your Climb is Starting to Accelerate

The path to wealth is becoming clearer and clearer now. Hopefully by now, you have started or finished paying off your credit card debt and you have started to automatically put together an emergency fund that is growing each month. At the end of the day, nothing has changed in your income but your Net Worth is already growing and you are starting to see additional money that can be used for the next phase of your adventure. Maybe you even went to your boss and got that raise or promotion and you have all of this extra cash just sitting around accumulating.

JUST HAVING MONEY WON’T BUY YOUR FREEDOM

Young grasshopper, it is now time to start understanding how really rich people make their money and live a life of freedom. Here, I am going to explain that having a lot of money doesn’t buy freedom or retirement. In other words, while your net worth is a great gauge for how much you’re worth at any given time, the number itself means nothing and won’t contribute to you being able to live life with no financial worries. What the heck does that mean? Here is an example of what I mean.

Let’s say for example you live in a middle class neighborhood and your monthly expenses are $10,000 per month. This covers your mortgage, your family’s expenses and all of the money you need to live every month. As the money-making asset in the family, you and/or your wife need to generate $10,000 in income to cover your expenses. Any money above expenses can be automatically saved for an emergency or maybe put into investments. Well, let’s say tomorrow you win $500,000 in the lottery (after they take out a bunch of taxes). Does that mean you get to quit your jobs? Does that money buy you financial freedom? Unfortunately, it doesn’t. Let’s say you and your wife quit your jobs because you’re loaded with cash now. If you never changed your lifestyle at all and your expenses are still $10,000/month, that lottery money would run out after 50 months – a little over 4 years. That’s not a very long time.

The example shows that just having a lot of money will not allow you to live a life of freedom. By the way, using that same example, even if you won $1 million, it would last just a little more than 8 years if you had no other income. That assumes you didn’t change your lifestyle at all, didn’t buy any toys, didn’t upgrade your home, etc. So, if just having a lot of money won’t help you achieve the freedom you want, what will? The answer is PASSIVE INCOME.

UNDERSTANDING PASSIVE INCOME

What the heck is passive income you ask? Well, passive income is money that you earn without lifting a finger. It’s money that you earn by breathing and sleeping and doing close to nothing. How amazing is it that you can make money in your sleep and doing almost nothing at all? The American dream provides the opportunities to do this in a number of ways. First it’s important to understand how this works and then I’ll go over how you can generate passive income.

There are many opportunities where you can invest extra money into places that will give you a return on your investment. The most common ways (actually the only three ways I know of) you can earn money in your sleep are the following:

Owning a business
Real Estate Investment
Stock Market Investment

That’s really it. There are only three ways to earn enough money to be financially free. When you look at the richest people in the world (Jeff Bezos, Warren Buffett, etc), you will notice that every single individual made their fortunes in one of these three areas. If you want to be wealthy and you want to live a life of freedom, you need to have passive income and these are the only three ways to do it.

So, how does Passive Income work?

The concept is fairly simple. In the example above, we had a couple with expenses of $10,000 per month. In that example the couple are the only asset generating money. That’s it. Two people making over $10,000 per month in their jobs. The family doesn’t have any other way of generating money. The concept of passive income is that if that couple were to put money into opportunities like the ones listed above and those opportunities generated money back to the family, all of that money could start to offset the $10,000 in expenses. If that couple put so much money into opportunities that those opportunities generated over $10,000 per month in income, then guess what? They would not only have assets/investments (in their net worth column), but they would have enough income from those opportunities to not have to work anymore. What do I call this? FINANCIAL FREEDOM!

The minute your passive income covers your expenses, you have arrived at the middle of the mountain! You can work when you want, where you want or do whatever you want knowing that your passive investments will cover your expenses. Technically, if nothing changed in your financial picture, as far as expenses you could actually retire (assuming you will never need more money for health reasons or other surprises).

EXAMPLE OF PASSIVE INCOME

Here is an example of how passive income can start to help offset your expenses. With the advent of the internet and crowd funding, there are companies that purchase and rent out apartment buildings and residential homes. In the past, it took hundreds of thousands of dollars to invest in an apartment building or to purchase investment property. Now, through companies like fundrise.com, you can invest with hundreds of dollars in apartment buildings all over the United States (they do require a $500 minimum investment). By crowdfunding from hundreds and thousands of small investors, they can combine the small investments into large amounts of capital they need to buy and manage buildings. They buy the buildings and manage the tenants and the maintenance and you get a small percentage of the profits plus a small piece of ownership of the real estate. Based on how much you give them, they pay out quarterly dividends to you based on the profits they make. For purposes of our example, let’s say the couple gave FundRise.com $1,000 for investing. According to their web site, they generated a return of 13% last year. This is a really high return for an investment, but we will use this rate of return for our example.

Let’s do the math here. The couple invested $1,000 with Fundrise.com. At a return of 13% annually, that means the couple would generate $130/year in interest or $11/month. The couple still has their initial $1,000 investment, but they are getting free money – $11 per month. It doesn’t sound like a lot of money, but here is where compound interest starts to kick ass and generate even more money.

WHAT IS COMPOUND INTEREST?

The couple in the example above invested $1,000 into the investment and if they took the $11/month and put into their bank, they would always get $130/year. Fundrise pays out every 3 months so this couple could get a payment of $33 every three months back to their bank account. We are going to assume now that the couple probably doesn’t need the $33 so they could leave the $33 in the account and that could add to their $1,000 investment and generate interest. After the first three months, the couple would now generate FREE MONEY interest on $1,033. In another three months, the couple would be generating FREE MONEY interest on $1,066. If this couple leaves that initial money in their account for three years and never added a dime, in 3 years, that $1,000 would be worth $1,467 and in 10 years (assuming the same interest rate above of 13%), the couple could have $3,594. So, for an initial investment of $1,000 and not doing a thing except sleep, they made 3.5x their money in 10 years. If you knew that you could more than triple your money by not doing anything, would that be something that would interest you? Does compound interest sound cool yet?

Let’s go back to our previous example in step six (click here). Here, we had a couple that was able to save $1,000 every month. Based on the power of compound interest, if we assume an interest rate of only 7% per year, a couple saving $1,000 every month and putting that into investments would have $71,798 in 5 years. So that couple would have invested $60,000 and received $11,000 in free money! Now, let’s say after 5 years the couple stopped putting in any more money monthly, but they let their money sit in that account and just reinvested the dividends only. Starting at $72,000 and at 7% interest, that money would grow to $100,983 over the next 5 years! So, this couple put in $60,000 and with the power of interest would have $100,983 over 10 years. If that couple continued to donate $1,000 per month over the entire 10 years, they would have $171,951. To reiterate, they put away $120,000 in savings and got FREE MONEY interest payments of $51,951. Do you see a pattern here? Free Money.. Free Money… Free Money…

That is a large amount of money. Time and patience and focus and choices can make that happen. The only problem here is that this amount of money is great, but it’s not going to be enough over 10 years to allow the couple in our example to retire. The next step discusses your timing and your goals.

Step Six – Goal Setting Time

NOW IS TIME TO SET YOUR GOALS

By now, you should have a handle on your spending habits, how much income you have and what you have to save each month. Hopefully, you have gone to your boss and maybe you have some more money in income from either a higher position or a raise. If not, it’s okay, we will be looking at additional ways to generate more money shortly. In order to get to the next step, you need to start putting a plan together for the following things:

Pay off debt
Create an emergency fund
Start looking at investment opportunities

Ideally, you would be able to do all of the above at the same time, but I understand that if times are more difficult, it may be harder to do it all. As you review your finances and your monthly cashflow, you will be able to determine what you can spend and when.

PAY OFF YOUR DEBT

This is the most important aspect of wealth creation. Debt will simply drag you down. That said, there are different kinds of debt like credit cards, car payments, school loans and more. The trick here is that I am not saying you have to pay down ALL DEBT before you can start saving. If you have $25,000 in school debt, it would be great to pay it off immediately, but the interest rates on those loans might be less than what you would get in an investment.

For example, assume you have a school loan at 4% interest and you are paying off the debt each month plus principal of that debt. Now, let’s assume you have an extra $100 per month. Then, assume there is a real estate investment fund that generates 6% interest. If you put that $100 into the real estate fund, it will generate more money for you than paying off that school loan.

So, what’s my point here? You need to organize your debt into the highest debt interest to the lowest. In general, I recommend:

Get rid of your credit card debt first – with interest of around 17% – 25%. If you already have the mindset to get rid of your debt, here is an excellent trick! If you open a new credit card with a different company, many credit card companies will give new customers an interest free period of 6 months to 1 year on balance transfers. SO, if you move a $10,000 debt to a new account with no interest for one year, you can work on paying off that balance and pay ZERO interest. There is only one caveat. You have to cut up the first card. You CANNOT use both cards for buying more stuff!
Car loan – ideally, you would be able to figure out how to pay off your car. According to Lending Tree, the average monthly car payment in the U.S. is $563 for new vehicles, $397 for used vehicles and $450 for leased vehicles. Overall, Americans owe nearly $1.4 trillion in auto loan debt. Auto debt makes up 5% of American consumer debt. You are here because you want to be different! Big Surprise – You don’t have to have a car payment. You don’t need to be like everyone else. To be wealthy, you need to make sacrifices and $563/month is a huge amount each month for many people. I personally had a car payment of $550/month. I paid down my car and refinanced the loan after two years and now I have less debt and a $320/month payment. My goal is to continue to pay down the debt until I have no payment and then use that original $550/month for investments.
Other loans. Look at other loans you have and determine if it makes sense to pay off. I purchased a travel trailer with an $11,000 loan. The loan cost was “only” $110 per month. During the pandemic, I made it my mission to pay off all of the loans I could and get rid of any of the smaller loans I had. This is where most people get busted. The “only” $100/month for a trailer and “only” $40 per month for a Peloton membership and “only” $6 per month for another subscription. The next thing you know, you have “only” $500 in monthly payments. Get rid of the things you don’t use and subscriptions you don’t need.
Mortgage loans. Most mortgage loans are now less than 4%. If you don’t have a loan lower than 4%, you better be on the phone right now with a mortgage lender to refinance your loan and save that monthly payment. Again, this is not a loan worth paying off since the rates are so low and your extra money can generate more money elsewhere (more on that later). Plus, you are getting a tax write off on the interest you are paying every year, so really the interest rate for most people is almost nothing.

ESTABLISH AN EMERGENCY FUND

The worst thing that can happen in your journey is an accident or an unexpected charge you weren’t expecting. An emergency fund is money that’s set aside for unplanned expenses, such as a medical bill, home repair or loss of income. Using emergency savings to cover unexpected expenses is better than paying with high-interest credit cards or taking out a new loan.

How do you start an emergency fund? The first step is to create a new bank account for the fund. An emergency fund needs to have enough money to cover 3-6 months of core expenses like monthly living expenses (home mortgage or rent), utilities, food and other necessities. In your cashflow analysis, you should have a good idea of what you spend each month.

THE POWER OF AUTOMATION

One of the great things about today’s society and technology is the power of automation. One thing we discussed here is the elimination of subscriptions. Well, why do you even have subscriptions? Because companies know that these are automated expenses that you just take for granted and pay because they are a pain to cancel and they are automated every month. Well, the beauty is that it goes both ways. There are a number of ways to automate your income savings. If you create a new bank account for your emergency fund, most banks like Chase bank have a feature that will allow you to transfer funds automatically every month from your main account to your emergency account. You create the setting, the amount to transfer and the date. I recommend creating the date on the day after you get your paycheck. I have automated settings to transfer $250 out of two monthly payments to a real estate fund account I am trying to build up to purchase real estate. It’s automatic and I don’t think about it, but I can tell it’s really cool every few months to see an extra $1,000 in that account.

On a more broad note, automation is what is going to make you wealthy. Going back to the Millionaire Mindset, at some point, you will have money making more for you while you sleep. WHAT? How is that possible? I’ll explain that in a bit, but this is what you need to understand now.

YOU PROBABLY SPEND WHAT YOU HAVE IN YOUR BANK ACCOUNT AT ANY GIVEN TIME! For example, if you make $5,500 per month and take home $4500 per month after taxes, you have to pay all of your bills out of that money. If your bills are:

$1,250 rent
$750 food
$500 shopping
$500 gas/car expenses
$500 entertainment
$500 credit card payments
Total: $4,000

This leaves $500 left over. Most people’s first reaction would be “Cool. What can I spend an extra $500 on today?” If you look at these expenses above, a couple of things stand out. 1) this person has $4,000 in expenses each month. Does this person have $16,000 – $24,000 in emergency savings? 2) none of the money above is going to savings. This person is doing just fine spending $4,000 per month and getting everything they want and need. In this person’s case, I would suggest two things:

Create an automated setting to move $250/month into the Emergency savings fund
Use another $150 to pay off credit card debt until it’s zero (up to $650/month)
Personally, I would use the last $100 to buy something extra.

Now, the FIRE movement people would tell you to move shopping to $100, food to $500 if possible, spend every extra dime on credit card payments and make entertainment close to zero. Like I said, I don’t think you want to miss out on everything in life to save every penny, but this is where your choices will determine how fast you climb the mountain. If you decrease your spending, move the payments over to your credit card and emergency savings, you could have that funded in 6-12 months. Otherwise, it could take longer. It’s up to you.

If the person above can cut expenses to the following:

$1,000 rent
$650 food
$300 shopping
$500 gas/car expenses
$300 entertainment
$500 credit card payments
Total: $3,250

This would leave $1250/month left over. Once the credit cards are paid off, it would leave $1750 left over. Without making an extra dime, this person could put $1,000/month away, STILL HAVE $250 for expenses and fun left over and have an emergency fund funded within one year. By the way, with that extra $250 or other money, start using your debit cards to pay for things. You can’t keep racking up credit card debt. Using the debit card will control your spending.

Did this person make sacrifices? Yes. Maybe they moved into a smaller place and spent less on shopping and a little less on food. But at the end of one year, they would be protected in case of an unexpected event. More importantly, they would have a lot of extra money to start investing!

The biggest takeaway here is that you will not miss the money that is automatically moved to your savings account. You will adjust your living expenses and your spending habits to account for having less money from each check. The automation is truly out of mind as it just happens automatically. I understand that living paycheck to paycheck is hard, but I’ll tell you once you start seeing the money accumulate (and your Net Worth numbers start increasing), you will start adding to the automation. Got a raise? Add to the automation! This is where your journey will really start to accelerate.

Step Five – Your Crossroads

THIS IS YOUR CROSS ROADS

We are on Step five. This is your first big challenge on your expedition. Can you change your habits and not purchase the jacket you saw at Nordstrom Rack or Macys and instead put that toward paying off the balance of your credit card? Can you choose not to eat out and spend $75 and use that to pay off that credit card faster? At this point in time, you haven’t made any more money so the only avenue you have to continue your journey is to change your buying and spending habits. It goes without saying that the more choices you make to forego buying more crap and more luxuries and instead focus on paying down the debt, the faster you will climb to your next plateau in your journey.

TIME TO GET EXTREME

As you start paying down your credit cards and your car loans and your other debt, a funny thing will start happening. When you check your NET WORTH, your overall worth will start to increase. “How can that be?” you say, “I’m not making any more money and I am not making any investments yet.” When your liabilities decrease (ie your credit card balances go down, your home mortgage loan decreases, your car loan balance decreases), guess what? Your overall net worth starts to go up! You have the same assets, but less debt.

Here is where you can start really making a difference. What if you were really ready to get rid of all of your debt quickly and move even faster to your ultimate goal? For almost everyone, the most expensive cost of any cashflow sheet is living expense. How much are you paying for rent or mortgage? If you have a sizable debt obligation, can you move home for a while to save while paying down debt? Can you move in with roommates? Can you rent out a room in the house you live in? If you can save hundreds or thousands here, you can pay off your debt in no time and move on.

The second most expensive cost most people have is a car payment. There is a common misconception that everyone “must have” a car payment. My wife decided to lease a brand new Lexus and it costs $550/month. The funny thing is she works from home and drives the car about 100 miles a week. Maybe. She has a fantastic job and she can afford the luxury, but I have to say it drives me up the wall every day I see that thing in the street. That is way too much to spend on a car that sees the road almost never. Her comment is “well, everyone has a car payment and I want to drive a nice car.” Mind you this is a leased car and we have no ownership of it and it’s never driven. I try to explain that if she had a used car, it could still be nice and we could save money that she could either save and invest or even shop with.

What if you had a car and could sell it and maybe downgrade to something nice and instead of a $500 or $600 monthly payment, you could buy an older car with cash while you pay down debt and get ready for the next leg of your journey? If you could save $500-$600/month and simply drive a different car for a while, would it affect your life? It won’t affect your daily life, but that savings could contribute to your financial future. Mark Cuban is a billionaire who started out with nothing and drove a car he paid $200 for ($1000 in today’s dollars). I’m pretty sure no one here would argue with his choices.

THE PAY OFF

The beauty of all of these steps is that you will see immediate results! We live in an age of on demand everything. We want to see the tv shows or movies we want to see immediately at the click of a button. We want results immediately. We don’t want to wait. When you use the tools outlined in these steps, you are able to login and start seeing the results of your efforts on a monthly, if not daily basis. As you pay down your debts or start putting in saving accounts, you will start to see your debts disappear and your net worth rising. As you gain more confidence at work and look for ways to increase your income you will subconsciously look for more and more ways to increase your net worth and you will be on your way to your ultimate goals.

My biggest regret in my 30s was that I had a small business that paid my expenses, but because I never tracked my net worth or spending, I just went out and wasted money on everything from restaurants to cars to material things. If I had something that I could use to easily to track my progress and saving and see that my efforts were resulting in more net worth, I would be far wealthier than I am today. I just spent what I had, paid down some debt when I had it and spent some more. Today is different. You have all of the tools you need at your disposal and the ability to see results of your saving efforts immediately.

Step Four – Sacrifice and Gain

If you have gotten this far, it’s actually pretty exciting. Only three steps down and you should have a clear understanding of how much you are worth, how much income you are generating and how much money you are spending. This is where it gets fun and agonizing at the same time.

THE AGONIZING PART

I have to start with the agonizing part first because it requires you to start cutting things. It is easier to stop spending on things than it is to immediately make more money. After the completion of Step Three, you should have an in depth, monthly chart showing exactly what you are spending each month. I am pretty sure that you have found some things in your chart that are completely surprising. What? We spend $1,200 per month eating out? We spend $1,000 on clothing and shopping? We spend $400/month on subscription services? Sometimes, you just have no idea what you are spending until you see it in writing.

So, let the cutting begin. The first step here is understand how much money you have to work with. If your income is $7,000 per month and your expenses are $6700 per month, it probably means you’re living paycheck to paycheck. It also means you have $300 per month to play with.

GET RID OF SUBSCRIPTIONS OR LOWER THEM

The next step is looking at the easy things you can cut. This would be SUBSCRIPTIONS! Over time (and especially if you have kids), I guarantee you are spending money every month on subscriptions you don’t need. Here are some example ways to lower your monthly subscriptions.

Check your Apple Pay account. Millions of people have an Apple account and many people are probably paying for subscriptions they don’t even know about. The following is a link to view and cancel subscriptions – https://support.apple.com/en-us/HT202039
Cut the Cable. According to a recent report, U.S. Cable & Internet Market Size and Household Spending Report for 2021, The report found that the 82% of U.S. households with a Cable & Internet bill spend $116 per month, or $1,392 per year. The average cost for broadband internet alone is $57/month. If you add in Netflix ($13/month for standard package) and one other channel at $6/month (like Disney+), the total cost would be $76/month saving you $40/month.
Check your credit card for other monthly services and see if there are competitors offering lower rates
Check your mobile phone bill and call your service provider. Cell phone companies are constantly changing plans and pricing. You might be able to save $20-$40/month on your cell phone bill by combining family members or cancelling services you don’t need. Personally, I think the insurance plans are a waste of money. You can pay the $11/month in insurance or buy a 3rd party insurance plan. You can pay $69 for two years through companies like Upsie (click here). AT $11/month through an insurance carrier, you can save $195 over two years.
Check your car insurance rates. There are many companies that will compare car insurance rates (like this one: https://compare-auto-insurance-quotes.com/) and you might be able to save money on insurance. The big saver here has to do with the coverage. Check your coverage because you can lower your coverage a bit and get much lower rates.

After this exercise, I have to believe you can find $100-$200/month in expenses at least that you didn’t need or didn’t even know you had. Ok, now please bear with me. THIS IS NOT NEW FOUND MONEY YOU CAN JUST SPEND FREELY. This is money we need for the next phase of the journey.

GET RID OF YOUR HIGHEST DEBT

The average credit card debt of U.S. families is $6,270, according to the most recent data from the Federal Reserve’s Survey of Consumer Finances. I am fairly confident if you are reading this article, that you have at least one credit card and that card has at least some balance on it. Some of you might have a lot of debt on their cards. The average credit card interest rate is about 17% APR. Paying the minimum payments off a large balance will take years.

Example

If you have $12,000 in debt at an average of 17% APR and you were making payments of $200/month, it would take 11 years and 2 months to pay off that debt. The worst part?? At the rate above, you would have to spend $27,000 in all to pay off your $12,000 debt.

I have discussed a very important concept in these blogs and it’s CHOICE. You have VERY HARD CHOICES to make here. You already know what your bills are, what you spend and what you make. After the first exercise above, you should have some additional money to pay off those credit cards. However, if you choose to spend that extra “new found” money and not focus on paying off your worst debt cards or other debt or start saving, you can probably pack up your things right now.

WHERE YOU CAN GAIN

I have already mentioned this before, but as you analyze your expenses, this is the time where you can look at your income. Many people fear change and they are complacent about moving jobs. However, unless you have some sort of ownership in the company, you have no loyalty to them and they have no loyalty to you. So, there is one thing I have always said to my wife, “If you are good at what you do, they are lucky to have you and you are not lucky to have that job.” You are on a mission now. You can’t waste your time in a job with a company that doesn’t value you and your contributions. So, the easiest way to increase the money side of your cashflow sheet is to:

Compare your salary. Go online and find your position and zip code and determine if you are getting paid a fair rate for your job title. If not, go to your boss with some supporting materials and other job postings where companies are paying a higher salary for your same position. Ask for more money! The worst he can say is no.
Ask for a promotion. I tell my wife that if the company promotes you with a better job title but not a huge raise, it’s fine. That job title is most likely worth more at another company and after a couple of months, you can go back to your boss and follow the instructions above.
Go to another company. I know change is hard and going to a new place with new people can be challenging, but you are here which means you are ready to get out of your comfort zone. There are millions of jobs available right now and employers are paying more money. Easily increase your income by finding a new job where they will pay more for your time.

If you are maxed out on your salary and you love where you work, the next area you will want to look at is making extra money doing side gigs (more on that later). The items listed above are the most immediate way to impact your current income.

HAVE A COMPANY?

I have owned my own web design company for about 25 years. I am not a self-proclaimed “hustler” where I get in front of hundreds of people to pitch my company for services. The fact is, I am really good at what I do and I have generated most of my money through referrals and I spend money on Google Adwords to generate traffic and leads.

While I was at a self help seminar one weekend, I sat back and listened to the guy talk about most of the things I have mentioned here in these blogs. “Get out of your comfort zone. Think about it and it will come. Starting a business or investment is the fastest way to wealth.” The guy asked if anyone had their own business and I stood up. He asked me “What would be the one thing you want from your business that you are not getting now?” I replied “Well, it would be great if I could make more money with my business.” And he replied back “Are you good at what you do?” “Of course” I said. His reply was great, “Well, the easiest way to make more money if you are truly good at what you do is just charge more money.” I just stood there deep in thought. Uhhh. Duhhh. So I went back to my office and start raising my design fees and my hosting fees and, lo and behold, my revenues went up by 20%.

If you own a company and you are good at what you do, the easiest way to make more money is to charge more for what you do.