During my travels I have had conversations with many people around the country. Often they are conversations about wealthy people and people with limited financial resources. I share my opinion on how people become wealthy: most of the wealthy people in this country sacrificed spending to take advantage of moneymaking opportunities. It is unlikely that you can increase your wealth in our generally capitalistic system without limiting spending. It is true that spending satisfies your immediate desires, but it does not necessarily enhance your wealth (depending on what you buy). The "work and spend" syndrome (commonly called "living from payday to payday") must be overcome. This is the first step toward increasing wealth.
Some time ago, someone said that if all the money that wealthy people had was given to poor people, eventually the wealthy people would get all the money back. This is perhaps true today. The statement assumes that poor people, knowing their tendency to consume or spend all their money, would in fact spend the money on something that the formerly wealthy people would have discovered to sell to them. We as individuals, especially those who are poor, must defy this scenario. We must learn to keep a portion of what we earn. We must save. Any portion of earnings or income not committed to the purchase of necessities (food, shelter, transportation, insurance and utilities) is available for saving.
Managing your money is both a challenge and a vital necessity. Spending and saving your money require serious thought and consideration. You must discipline yourself in order to limit spending, given your particular circumstances.
Payroll deduction arrangements are an effective means of saving because a specific portion of your salary or wages is set aside up front before any expenditures are considered. If you were to establish a payroll deduction for a 26-week pay period at the rate of $50 per pay period, at the end of the year you would have $1,300, and if you were to continue with this arrangement for another year, at the end of the second year you would have $2,600, not including the interest income or dividends that would be earned on these amounts. The amount would be even larger if the payroll deductions were larger. This is one way to accumulate wealth through payroll deductions. These are other ways to limit spending. Some are indicated below:
- Develop a personal budget that identifies all income and expenses.
- Decrease credit limits on charge cards.
- Establish limits on the price you will pay for major and non-major purchases such as appliances, clothing and housing.
- Maintain a small cash balance in your checking account.
- Avoid keeping large sums of cash in your pocket.
- Establish spending limits for entertainment or other recreational activities.
- Avoid social pressures to buy to impress others.
Before you develop your savings plan you should identify goals, for instance:
- Funding a college education.
- Developing a financial safety net in the event of illness, emergency or loss of a job.
- Purchasing a home.
- Making investments.
The personal and family goals identified by you should reflect the values that you and your family hold. Of course, your goals may change because your needs, wants, values and resources change during your lifetime, but the goals should generally indicate a thrust of wealth-creating.
Remember, it's not how much money you make that's important; it's how to maximize what you have available.