If you have been reading about personal finance for any length of time, I’m sure you’ve come across this advice before. It is the wrong way to think, and it will not make you rich.
Don’t get me wrong: it is not bad advice. If you are struggling to get out of debt, or prepare yourself for retirement at age 65 or later, it is fine advice. For most people this may be the best advice that they ever receive. However, it is the wrong way to think. The right way to think is this: earn more than you spend.
“Wait a minute,” you may say, “that’s the same thing.” No it is not. If you earn $1000 per month, and save $100 per month, you’re doing a great job. However, this is thinking that puts a limit on your future. If you continue to earn $1000 per month, you can never save more than $1000. Your pool of money for building wealth will never increase.
However, if your living expenses are $1000 per month and you can think of ways to earn more, there is no limit to your savings or investing or wealth building opportunities. If your living expenses stay at $1000 per month and you can earn $2000, you have $1000 to build wealth. That $1000 can itself generate more cash (dividends, a business, etc.) and soon you may be making $2500 per month. There is no top limit in this scenario, as long as you earn more than you spend.
“I can’t earn any more than I do now,” you say. “My salary review doesn’t come up until May!” You can always earn more money. It’s true; I am willing to bet that everyone has some way they can earn more. A quick list off the top of my head of a few ways:
- Sell all of your old CDs and DVDs on eBay.
- Sell all of your old books on amazon.com.
- Start a blog (with ads).
- Offer to give people in your neighborhood a ride to work for a monthly fee.
- Look for money owed to you on www.missingmoney.com
- Take an online survey.
- Sell a funny t-shirt on cafepress.com. I plan to do this soon. Want a Brip Blap t-shirt?
- Invest at Lending Club.
- If you aren’t already putting money in your company 401(k) and your employer has a matching program, sign up today.
- Get a cash back credit card and use it carefully.
- Write an e-book. You’ve gotten this far in life doing stuff – there must be something you can offer tips on!
- Prepare a price book for your local supermarkets and sell it to other people. Or create an email list and ask people to subscribe.
- If you have a house with extra room in your garage, rent space for people to park their cars while they are on vacation.
- Write a novel. If this woman can do it while caring for three little kids right after her husband left her, so can you.
- Start a drop-ship business.
- Learn to prepare taxes.
- Make a cute calendar at kodakgallery.com, then resell it to the public.
- Set up an amazon a-store. Tell all of your friends and relatives to stop there before buying anything at amazon.
- Put a PayPal Donation button in your email signature. Ask for $1 for good karma. I have never tried this, but I am willing to bet it will yield more than nothing!
- Open a high-yield savings account.
- In Maine, Vermont, Connecticut, Massachusetts, New York, Delaware or Oregon, take your plastic bottles back to the store where you bought them for a $.05 refund.
- Start doing stock photography and sell your work on iStockPhoto.
- Print all of your favorite recipes on 3 X 5 index cards, with cute graphics and large, easy-to-read directions, and sell them. People like having something small on hand instead of needing to take up counter space with a book while cooking.
- Teach at an online school.
- Become a mystery shopper.
- The next time you go out of town, look for clever souvenirs from that town. Resell them when you come home, or on the internet. A friend of mine made thousands doing this.
- Become a resume writer.
- Can you make arts and crafts? Sell your work online at etsy.
- Create a line of greeting cards.
- Marry someone rich
The simple fact is that if you are looking to retire at age 65, keeping your head down and slogging away at your main source of income while saving a little bit here and there will get you there. That’s not a bad thing! If you are happy with your job, keep your spare time free and do what you like.
However, if you want to get out of the “rat race” – if you want to be free to do what you want when you want – you have to build wealth faster, and the best way to do that is to earn more than you spend.