Many people believe that not making enough money is the reason for their financial problems. Yet of even high-wage earners, those earning over $100,000 a year, nearly 20% live paycheck-to-paycheck and 30% save less $250 a month.
Furthermore, of those workers earning over $100,000 a year, 18% could only continue their lifestyle for a month or less if they lost their income.
Many people think that their financial problems will be solved with money, but they don’t realize that money will only compound their financial problems particularly if coupled with poor management and planning skills.
As your income increases, there is the natural tendency to raise your standard of living and expenses in accordance. However, to build wealth, you must resist this urge.
As a general rule, regardless of your income:
- You should be saving and investing at least 15% of your after tax income
- 15% or less should go toward debt service
- 70% or less should go toward living expenses
As your income increases, strive to keep your living expenses the same and put the extra income toward debt service, savings, investment, and starting your own business.
As you receive bonuses and periodic windfalls of cash, elect first to pay down your debt, particularly those obligations that once satisfied will free up more monthly cash flow.
Next, choose to save and invest rather than squander the money on things that rapidly depreciate or have no value.
Raise your standard of living only as you are able to build up passive sources of income that will pay for the change. Cash flow from your assets should finance changes in your lifestyle, not your physical labor.
Remember, it is with every dollar that we choose to be rich or poor. Your financial independence depends not on how much you make, but what you do with the money you make and the wealth you can create through intelligent action.
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William R. Patterson is CEO of The Baron Solution Group. He is also Chairman and CEO of The Warcoffer Capital Group, LLC ("WCG"). He leads the WCG's corporate strategy and development consulting efforts including portfolio management, mergers, acquisitions, and divestitures. The Baron Solution Group is an award-winning training, business coaching, and consulting firm for executives, entrepreneurs, and investors lead by William R. Patterson. William is ranked as the #1 Business Motivational Speaker by Ranking.com and is also winner of three 2008 Web Awards including Best Speaker, Best Male Author, and Best Wealth-Building Site. THE BARON SOLUTION integrates over 200 proven business and financial accelerators to help you rapidly achieve your organizational and personal goals.
