"Spend less than you earn and invest the difference wisely."
Of course, there's more to it than that. But if you adhere to those eight words as a guiding principle, you will find yourself in good shape down the road. If it worked for Ben Franklin and J.P. Getty, it can work for you.
A recent article in the Huffington Post describes this concept as three-legged stool consisting of three separate but connected ideas. According to the article, titled “Everything You Need To Build Wealth.. In One Sentence,” one of the most important (and most difficult) of the three ideas (Leg #1) is to “Reduce spending by eliminating monthly expense programs and unnecessary luxuries and living frugally.” For example, think about your car (or cars). Does your monthly car payment look nearly the same as your mortgage? Ask yourself if you really need two expensive models.
Ok. Now ask yourself again – and this time, be honest. Might you survive on just one and perhaps trade the other for something more economical and easier on the budget? Do you buy a new car every two or three years? What if you kept that car for five years and enjoyed some time without a monthly car payment. A lot of people do it, and they don't appear to be harmed in any way. In fact, having only a $200/month car payment or no payment at all means more money to invest and save for the future. Try it!
While you should definitely read the original article, here are the other two legs of the wealth-building stool:
- Leg 2: “Increase your income by improving job skills or changing jobs -- or consider working overtime or starting a new business.”
- Leg 3: “Invest wisely by learning what is necessary.”
Don’t focus on just one or two legs of the three-legged stool. In fact, each is just as important as the others. Follow the advice in the original article with the expert assistance of your financial advisor, and you’ll be building your financial success on a secure foundation.
Reference: Huffington Post, February 19, 2014: “Everything You Need To Build Wealth.. In One Sentence”