Building wealth is simple; simple but not easy. It’s simple because it doesn’t require genius, special treatment, or special connections to understand the principle. And with access to technology and automation tools, this is even truer today than ever before. In this video, I’m going to share with you in two sentences the simple formula to achieve financial success; and the simple reason why 99 percent of people will only dream of financial success. This simple reason makes the difference between success and failure.
You see, I believe I’m lucky to have achieved the financial capability I have today. But I also believe that if I was lucky, I would have made myself available to be found by luck. I’ve seen people win a lot of money or got an opportunity out of luck and lost it all. That goes to show that if luck plays a part in success, it is only the icing on the cake. That is to say that building wealth is scientific; it can be taught; it can be learned; it can be replicated.
With that said, here is the simple formula that sum up the process for creating wealth and achieving financial success. It’s so simple it can be explained in just two sentences:
- Make more than you spend and invest the difference wisely.
- Develop daily positive habits that compound into long term result.
You didn’t expect it to be this simple. You wanted something new, different, and clever. But frankly, this simple formula is not my idea. This is timeless wisdom shared by many financial gurus and wealth authorities for centuries to this present day. When I think through the process I have gone through starting from scratch to building my financial capability, this simple formula summarizes my experience. I developed the habit of spending less than I made quite early, even when I was making little. Then I invest the savings into learning and over time into assets. It’s a ridiculously simple and proven principle but most people while looking for complexity, take it for granted.
Let’s take this apart for gain more clarity.
Spend Less Than You earn & Invest the Difference
This sentence can be broken down into three parts, yet all tightly connected.
- Spend less
- Earn more
- Invest wisely
There are two general ways to achieve this; you either reduce spending immediately by cutting down your expenses or you increase how much you earn. Whatever works for you, the idea is that you must create a gap between how much you earn and how much you spend so that you have savings to invest for growth and additional income. The wider the positive gap between your earning and spending, the faster you can create wealth.
Interestingly, it takes a different mindset to spend less and to earn more. Some people are good with earning more but are lavish with their earning; while some have the discipline to save from their average income but bad with growing their income.
You have to understand this; it doesn’t matter how much you increase your income, if spending increases with your income, you will never be wealthy. This is why the discipline to spend less than you earn is a very important part of the wealth equation. But you don’t have to stop there. You have to move towards raising your income.
Some simple things you can do to spend less is to eliminate expenses that are influenced by peer pressure, spend on what increases your value and not liabilities, track your spending, repair instead of replace, eliminate unnecessary fees and subscriptions and never buy lifestyle on credit.
Some steps you can take to earn more includes investing in your Education and training, increasing job skills; converting your hobby into income; starting a side hustle; offer part-time or freelance service. If you are smart with technology, you can do a lot to increase your income.
The third component to the equation is to invest wisely. This is also simple because knowledge you need to learn is available for free in the public domain. There are many active and passive investment options today. You can learn to invest in business, real estate, or paper assets.
If you get good with spending less and earning more, you will soon have a pool of money to start investing wisely. The greatest wealth builders focus on both sides of the equation together. They maximize savings by controlling spending while growing income at the same time. Don’t forget the lesson. Spend less than you make and invest the difference wisely. Rinse and repeat until the income from your investments exceeds your expenses. That is when you start experiencing financial independence and capabilities.
Unfortunately, there is one problem. Few people will ever achieve this level of financial capability despite the path being simple. The reason is explained in the second sentence.
Your habits determines your wealth
The formula for how to achieve financial success is simple and proven. The only thing remaining is to take action with enough consistency to achieve the result. That is where the problems lie. The reason so few people succeed in building wealth is because majority of people don’t adopt habits that lead to wealth. Smart choices made consistently over time equals to wealth.
Spending less than you earn is only possible with the right habits. Increasing your income is only possible with the right work ethics and continuous learning; all about habits.
Most people simple hope to get to pursue their financial aspiration someday. They know what they should do but there is always some other priority. It’s one thing to know what to do, and it’s something else entirely to get to do it.
People who become financially successful don’t necessarily earn the most. They aren’t the smartest. They don’t have any special talent or training. They just have good habits that support their wealth building goal. Small habits repeated over long periods of time can create massive results. It’s that plain simple. If you have the habit of scrolling through social media 6 hours every day, you have your priority set and it does not support your wealth building goal.
A consistent habit to learn and train will increase your earning capacity by a little that compound to a lot over time. The consistent habit to save a certain percentage of your income may not mean a lot in the beginning. But will make a huge difference over time. The habit causes the action that produces the result. And you can start today to adopt one positive habit at a time that will serve your wealth goal.
You can sign up for an automatic savings program; find and eliminate an unnecessary expense; repair instead of replacing liabilities; subject to learning a new skill that will command a higher income; or start learning about investment. Just pick one habit and start today. Practice the habit until it becomes second nature, then pick another habit and do it again; then another. The compounded effect of all these tiny actions over a lifetime becomes wealth.
In a nutshell, the formula to build wealth is simple: spend less than you make and invest the difference wisely. Adopt wealth-building habits consistently. The only thing standing between you and wealth is the willingness to act on this timeless wisdom.