The media has depicted an elaborate picture of what it looks and feels like to be rich. A rich person today is defined as someone who owns an expensive car or a huge house, or has a job which fills his or her bank account with huge sums of money. You can’t think of yourself as being rich if you do not fit into that criterion.
However, this is not true in most cases. A rich person, in reality, lives a very normal life. It is not necessary that rich people own huge mansions, expensive cars, or have investments in big businesses.
In all honesty, the only difference between those who are rich and those who are poor is the fact that they live below their means. This is their biggest secret of becoming rich.
Living below your means involves making conscious choices about your lifestyle, only spending on things which you need without opting for luxurious alternatives.
For example, when you have the ability to buy an expensive car, but instead you choose one which you need, then you are saving yourself a lot of money. The formula for getting rich is simple. You have to spend less than what you earn.
Reduce Your Bills
Reducing your expenditure will require a lot of effort on your part. It is not enough to reduce your expenditure only in groceries or other meagre expenses. Rather, you need to apply this as a principle, categorically covering all the outlets which require you to spend money.
Of course, it is a gradual process which needs to be applied on a consistent basis in order to be effective.
You have to spend less and create more, ever expanding the difference between your earnings and your expenses. One way to do this is by monitoring both your income and expenditure for every month.
Understandably, it is a time consuming and lengthy process, but it will allow you to become more disciplined with how you spend your money. Many people are unable to reduce expenses solely because of lack of planning and budgeting of their expenditure.
There are many ways to record your monthly expenses, but we have some guidelines to aid you in the process. First, you need to identify the nature of all your expenses and categorize them as such. Next, you need to record the amount you spend under each category.
The goal is to avoid unnecessary expenditure altogether and also to figure out cheaper alternatives for necessary expenditure. Once you have your expenses split into categories, then identifying areas for cutbacks would become very easy.
For example, you may want to avoid the hefty bills being charged by your TV subscriptions in favor of the much cheaper Netflix subscription. This strategy of categorizing and optimizing your expenses will not only help you cut down on costs but also allow you to monitor your expenses to immediately know when you are overspending.
Increase Savings
At start of every month, some amount from your monthly income should be transferred from your checking account to your savings account, after making deductions for the necessary bills.
In this way, the amount which you will separate for savings will probably not be utilized for meeting everyday spending. Also, this strategy defines your limits of spending and helps you in making a more realistic budget of your monthly expenses.
Apart from forced savings at the start of each month, you need to make sure you increase the amount you save by 1% after every six months, meaning you should be increasingly saving more as time passes.
This will help increase the amount you save without significantly impacting your disposable income.
Another great practice to adopt in terms of savings is to separate half of the amount you receive as a raise in your income and deposit it into your savings account. The rest can be spent on improving your lifestyle, although if you save that as well, that would be best in the long term.
Remember, the important part is to make sure you are saving as much as you can from your income as that saving is going to allow you to eventually retire in the future. If you don’t want to think about retirement at the moment, that’s fine.
Having enough savings also allows you to make investments in the long run or start your own business, both of which can be way more lucrative than any job you do.