When it comes to being responsible with money, there are many schools of thought, but they can all be divided into two camps– ways to save money and ways to earn money. Some people believe you should work as hard as you can and be extremely frugal, saving every penny possible.
Many parents tell their children who are going off to college that they need to finish school, get a good job, and save their money. This plan, however, does not lead to wealth. It only leads to financial struggle and self-denial, and doesn’t provide for retirement. It sounds like a safe plan, but it isn’t safe at all.
A Different Approach
Those who are wealthy have a different philosophy about money, which anyone can adopt. They don’t believe in just saving money, they believe in making their money work for them. This means using money as an investment which earns more money.
You don’t need to be highly educated, or have a degree in finance, to accomplish this. Many wealthy people started out helping support their families in a family business. In addition to a traditional education in reading, writing, and arithmetic, they receive a financial education. Rich people understand how money and investments work, and make it a priority to create monthly cash flow from investments.
Wealthy people make it a point to work for themselves, not for others. Rather than simply save money, they invest it in assets that make more money. When it’s time for retirement, they can truly enjoy life, because of their financial freedom.
The difference between financial struggle and wealth all comes down to a different philosophy about money.
Don’t Just Work For Money
Many people who are struggling financially focus on saving more money instead of focusing on earning more money. There is a problem with this mindset, and it is that you end up working for others rather than yourself. When you place all your focus on getting money into the bank, you can miss opportunities to make yourself richer.
This frugal mindset has become very popular recently, with people almost making a competition out of how little they can spend on necessities and luxuries, in order to save money.
Money Should Work For You
The rich don’t focus on saving, they focus on earning more money. They look at money as a tool to increase their wealth, not simply as wealth itself. If you think about money as a way to make more money, you will find many opportunities to increase your wealth. There are several ways that newcomers to investing can begin to use their money as a way to increase their wealth:
- You can buy stock directly with plans called Dividend Reinvestment Plans (DRIPs) or Direct Stock Purchase Plans (DSPs). There are plans available that do not charge transaction fees, and some offer discounts on reinvestment.
- Start with mutual funds with a lower minimum-purchase requirement, and as your wealth increases, you can purchase more expensive mutual funds.
- You can open a discount brokerage account, which doesn’t offer every service offered by full-service brokers, but is perfect for those who are just starting out buying stocks.
- Invest in high-yield CDs (certificates of deposit) if you know you won’t need the money for one to five years.
When it comes to your financial focus, spend your time and energy building cash-producing assets, and use the income provided by those investments to pay your living expenses. Of course, you will need to save money before you invest money, but don’t just let it sit in a savings account!
Planning For Wealth
The main difference between the rich and the poor essentially comes down to how they manage. Their money. The poor try to save money, and live below their means. The money management of the poor stresses cutting expenditures to below income level. They pay everyone else first, and then try to save what is left, which usually isn’t much.
The rich believe in expanding their means by carefully planning to use money to increase income. They pay themselves and invest first, and then take care of expenses. They view creating surplus income as an expense.
What this means is, instead of viewing extra money as an asset, the rich see it as an expense to be invested. When you make investments an expense in your budget, you ensure that they become a priority. Some people call it paying yourself first.
And this is the crux of the matter– Do you choose to pay yourself first, or everyone else? When it comes to becoming wealthy, it’s all about your philosophy. Save money first, but then make sure it is working for you in investments.