Ok, so in a previous post, we defined what it was to be wealthy. If you haven’t read that one, go read it first!
“Wealthy” means your passive and portfolio income is greater than your expenses.
There are two ways to get to this definition of wealthy.
Maximize passive and portfolio income
In order for your incomes to be greater than your expenses, you either have to increase your passive and portfolio income or minimize your expenses.
It’s really as easy as that!
Maximizing passive and portfolio income means increasing what you make through any other source other than your normal job. One of the long-term goals of this blog is to find ways of doing this.
Minimizing expenses is probably one of the easiest ways of reaching a wealthy state. Look at your monthly financial summary (you have one of those, right?) and see where your money is going. Probably a bulk of it is going to a mortgage or rent. Other sources of expenses are food, utilities, entertainment, bill (credit card, student loan, car) and so on. Look through these and see what is possible to cut out.
Can the “food” category be eliminated? Please no! How about utilities? Well they can be lowered by being smart about energy usage. But what about the mortgage? Obviously I don’t advocate not paying your mortgage! However this expense can be eliminated with a bit of effort by paying it off. Same with student loans, credit card bills and car payments. Pay them off! Become debt free. These expenses are some of the best ways to minimize the gap between your income and your expenses.
For example, if your expenses are $4,000 a year, it may be pretty difficult and take awhile to get up to $4,000 of passive or portfolio income. However if your expenses go down by $1,000 to $3,000, that means you only need to earn $3,000 of passive income. Much easier!
The more you lower your expenses, the easier it is to match it with passive and portfolio income.
In another post, I’m going to walk through a balance sheet (it’s really not that scary, trust me!) which will help visualize this process even more.