I don’t know anyone who hasn’t played the “what would you do if you won the lottery?” game at least once. It’s pretty common to daydream (at least once in a while) about what things would be like if you were rich, but how many of us have an actual plan to get rich over time?
Building wealth is a topic that’s often neglected; probably in part because so many are more concerned with just getting to even (by getting out of debt, or by breaking the cycle of living paycheck to paycheck.) But wealth building is something that’s worth pursuing.
When you plan to build wealth, it automatically changes your focus from what you don’t have, to what you’re working toward. And becoming wealthy is certainly possible, even on a modest income.
It’s a matter of consistently saving and investing at least a minimum portion of every bit of money that comes to you — and then never spending that money, no matter what. It’s even better if you can set that money aside automatically.
Now you may be thinking, “What’s the point of saving and investing money if you’re never going to spend it?”. The point is this: that’s the money you’re using to build wealth.
So long as you don’t spend the principal (and so long as you keep adding to it until you reach whatever amount you consider as “wealthy”) you’ll always be making progress toward your goal. And there’s nothing to say that you can’t spend the income you receive from that money.
To me, spending the income (once I reach my goal) is pretty much the point in building wealth. That will allow me to live off truly passive income — income that no longer requires me to do anything to receive it.
Posted in Make Money on 08.26.10 with 6 comments.
Great point – we save 30-40% of our income now so that we can live off of the interest of that wealth during retirement. Without a huge pile of money, we would have limited options in our future which is unacceptable to me. My 20-50 year old self with a job can take more risks than my no-job retiree self in 30 years.
You’re right, the risk angle is important to consider as well.
I always think of our savings {small amount of!} as a ‘passive income producer’, not as a lump sum amount that’s there for us to spend; it’s the only way to think long term.
Oh, I like that ‘passive income producer’ phrase! That makes it sound like you’re doing something with the money (which of course you are) as opposed to having it “just sitting there”.
I have a hard time explaining to people how I plan to live off my passive income. “But you have to work,” they tell me. I try to save and invest all the money I don’t spend each month for the future. It usually works out to between 50-70%. I’d like to save more, but for now it’s working alright.
Do you tell them you are working now, so you don’t have to later? There are a lot of things we don’t have to do that many people do as a matter of course…