Wealthy and rich do not mean the same thing. Rich people who spend their entire income or more are not wealthy. People who live below their means are wealthy no matter how modest their income. They have saved for emergencies and know the satisfaction of giving and generosity. With that in mind, however, it is impossible to build wealth and debt at the same time. Whoever wants to become wealthy must get out of debt and start saving. That’s easy to understand and hard to do. It will take a great deal of planning and determination. Fortunately, the process can be broken into steps.
First, you need to know what you spend. Your monthly bills are easy enough, but you also need to keep track of variable expenses like groceries, and particularly cash outlays like snacks.
Second, you need to figure out how you can change some of your spending habits. Maybe you’re appalled to learn how much you poke into vending machines. Maybe you realize that you only watch a few channels on cable and you can change to a less expensive plan. Maybe you can plan your errands so that you put fewer miles on your car. Perhaps you can walk or take the bus some places and not use the car at all. Examine everything you spend money on and be very honest with yourself.
Third, with whatever money you save by reducing spending, apply it to getting out of debt. And if you pay only the minimum due on your credit cards, you’ll never get out of debt! Pay the minimum plus the service charge, and as soon as possible, plus all of the new charges since the last time you paid.
Fourth, examine all of your debts (the mortgage excepted) and plan a total amount to spend on debt reduction. Allocate enough to the smallest bill to pay it off as quickly as possible. When that one is paid, add the same amount to the next smallest bill, and so on until you are out of debt
Fifth, begin to save, even if it’s only five dollars out of every paycheck. If you have your check deposited directly into your bank, you can have the bank put most of it into your checking account and some into your savings account. Once you’re out of debt, you may want to increase your spending, but be sure to save a hefty amount of the debt reduction item in your budget.
Once your savings increase and your debt does not, you have begun to build wealth. The more you accumulate savings, the better prepared you are for emergencies. You should also look for ways to give to some worthy cause. Among other reasons, regular giving will make you less anxious about money. For a more detailed look at these issues, see the link to one of my longer articles.