Personal finance is easy. It's simple. There is one fundamental law that governs your money. If you master this, you have mastered the entire game: To gain wealth, you must spend less than you earn.
In David Copperfield — one of my favorite books — Charles Dickens wrote:
Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.
That's all it takes. Think of it another way. Think of it like an arithmetic equation:
[WEALTH] = [WHAT YOU EARN] – [WHAT YOU SPEND]
If you spend more than you earn, you are losing wealth. You are accumulating debt. You are heading in the wrong direction. However, if you are earning more than you spend, you are accumulating wealth. The greater the gap you can create between earning and spending, the faster you will accumulate wealth. There are only two things you can do to gain more wealth: spend less and earn more.
Spending less is something that you can do right now with little or no effort. Just stop spending money. Seriously. That's it. Don't buy things. Sure, you need to buy some things, but if you learn to pay less for the essentials (food, shelter, clothing), and if you can learn to reduce your wants, you can trim spending by a shocking amount. Learn how to shop for groceries and to make your own food. Develop a frugal mindset. Live simply.
Earning money is the other half of the wealth equation. If you can increase the amount you earn, you will accumulate wealth more quickly. Because earning money is so important, many personal finance books stress that your career is your most important asset. Your most important asset is not your house; it's not your investment account; it is not — heaven forbid — your car. It's your career. This is why a college education is so important: it can help you land a better job, can increase your earning power. This is why your professional reputation is so important: what your employer thinks of you, what your co-workers think of you, what your customers think of you all play a role in your success. If you treat your career like a prized possession, you'll have greater success at finding better paying, more-fulfilling jobs.
This may seem petty or obvious. But smart personal finance really is this simple: spend less than you earn. Everything else — the paying yourself first, the investing ten percent of what you make, the emergency fund, the debt snowball — everything else is simply done in support of this fundamental law. When you grasp this concept, most financial decisions become obvious.
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.
The article touched on a very simple formula on becoming wealthy. But I tend to disagree with several points. 1. wealth is not just about spending less and/or making more money to keep more money.its about spending that money wisely to make more money. 2. also debts are not all necessarily bad. donald trump is a billionaire, and he mostly used banks money to make him more money. he used his debt to make more money,sure in the beginning he was in debt, but he made sure that debt would make him money. 3. Your career is NOT your most… Read more »
forgot to add. the article about intelligence vs wealth? The intelligence that is often measured is academic intelligence. there are at least 6 other intelligences. One of them is Financial Intelligence. I guess no one has created questions to test this intelligence, cuz the people who create intelligence tests are those who have the academic intelligence.
From one perspective, it is easy to become rich at almost any income level because one’s definition of “rich” is apt to be lower as one’s personal wealth is lower. Put differently, the meaning of “rich” for an orphan living in a refugee camp will be a much lesser amount than for one of Donald Trump’s children.
I have over the past number of years worked on the basis of living without a those non-essentials. At one time, I as many others do, enjoyed the use of credit cards. However at the same time I never paid the credit card companies any interest on purchases. It took me some time to realise that saving interest was important, but more importantely I should not wast my money on things wanted rather than needed.
for me purpose of job is not ussually get money very much but instead of job is able to give profit or useful other people………it,s forever
Every Dollar You Spend Financial planning expert Jonathan Pond has often observed that “your best dollar is the one you don’t spend”. From the point of view of securing your and your family’s futures, there could not be a more accurate statement. Every time you spend a dollar, you give up the future value of that dollar. You lose the power that comes from possessing a sum of money. You also pay a very high price: you pay the “opportunity cost” of using that dollar in a better way. An example, though quite painful, will help you to see this… Read more »
I’d like to share that when I started to consistently visit GRS, I was: -able to pay off all my debt (it was not really that big of a debt but I was able to do it in 2 months, close to $700) -got the confidence to actually help out other people by sharing my own experience and how I was able to shape myself into someone in control of money (looking at it as a tool) -got even more motivated to work on a blog -feed the dream of actually guest posting here in GRS and other blogs, as… Read more »