We have all heard stories of people who have gotten rich overnight just to lose or blow their money in the course of a few years.
This is where the age old saying: “Easy Come, Easy Go” comes from. If this is the case, isn’t it better to get rich slow instead of get rick quick?
First of all, not everyone has the chance to get rich quick. There can only be so many lottery winners and only so many people are able to pick that one magical stock that goes up 1,000% in value over the course of a year.
However, it is within everyone’s grasp to become rich slowly. Anyone can become rich, it will just take some people more time to get there than others.
The first step in getting rich is to get control of your income. Income is our most valuable wealth building tool that we posses. I am not saying you have to go out and get a job that pays $100k or more. You can still become rich even on a modest salary.
There are actually two ways to get control of your income, that is to increase your incoming money and reduce your outgoing expenses.
The best way to reduce your outgoing expenses is to get on a written budget and pay off your debts. The quicker you pay off your debt, the sooner you can start building your wealth.
Debt is like a sickness to your wealth. It corrodes away at your income and costs you more and more each month as the interest builds. That is why it is so important to get rid of it and not take on any more debt ever again.
The one exception to this debt rule is when you buy a home, but if you want to continue building wealth, don’t let your mortgage payment be more than 25% of your take home pay.
After you get yourself out of debt you need a little nest egg for emergencies. The last thing you want to have happen on the road to wealth is to be debt free then have an emergency come up that you cannot afford. That would put you right back where you started, in debt again.
You should save about 3-6 months of expenses in an emergency fund and keep this in a nice savings account at the bank. This will give you security and aid you on the road of slowly becoming rich.
When you got your debt paid off and your emergency fund in place, you should be sitting fairly well financially. No longer is your income coming in only to be sent to creditors. You finally have a choice of what to do with your money. Now, instead of paying interest, you can start earning it and letting it work for you.
This would be a great time to really kick start the retirement savings. Putting at least 15% of your income away for your golden years.
Getting to this point early is important, so the magic of compound interest can do its job. You now have the freedom to save, invest and give money away as you see fit.
A lot of people think it is a great idea to use extra money to pay off their mortgage in order to free up even more of their income.
Imagine all the investment possibilities you can have when all of your income stays with you to be used as you see fit.
Remember from the story of the tortoise and the hare, slow and steady wins the race.
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