If you want to be rich, stop thinking about your salary
When we think about financial freedom and wealth building, we tend to focus on two important aspects: our salary and our monthly expenses.
Let me ask you a question, do you think that the higher your salary, the faster you will achieve wealth? The vast majority of people think that the harder they work and the higher their salary, the faster they will achieve financial freedom.
The thing is, this is not always the case. However, before we explain why this strategy doesn’t work, let’s first define what financial freedom is all about.
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Elements of financial freedom
Leaving aside dictionary concepts, it can be said that financial independence consists of three indispensable elements:
- Freedom of time
- Freedom of space
- Freedom of movement
It doesn’t matter if you have a lot of money, or even a lot of money, if you lack any of these three elements, you may have money but you are not financially free.
Put another way:
- You have money, but you don’t own your time.
- You have money, but you can’t stay at home or travel whenever you want.
- You have money, but you don’t own your schedule, you must go to an office.
When you only have money and you want to change this reality, it means giving up your only source of income. In short, and as the popular saying goes, you are so poor that you only have money.
To be rich, you have to forget about your salary
Let me ask you another question, do you really want to learn how to be a millionaire? Assuming you do, the invitation is to stop thinking about your salary.
When you only focus on having a very good salary, but you are not responsible for the way it is generated, the kind of situations you just read about happen (you have money, but no financial freedom).
The point is that, when this happens, you and your family are at great risk, because although you have a good income every month, you lack several elements of financial freedom.
So, if you want to be really rich and achieve financial independence, I invite you to pay close attention to the following concepts that we will review in this article, and that will change the way you think about money and how you generate income each month.
Types of income and how they work
While there are various sources of income, they can be grouped into two broad categories:
- Active income
- Passive income
Let’s look at each of them.
Active income
is where you exchange your time for money. This includes your full-time job, online freelance or remote work, and paid work. Because you only have 24 hours each day, your active income is limited to this time.
Passive income
Passive income is income that doesn’t require your presence or active work to generate. It’s not that you don’t have to do anything at all to earn it, but your commitment is very different. Some of these are:
- Investments in the stock market
- real estate investments
- physical or digital businesses
- rentals
- among others
Now that you know both types of income, I ask you: how many sources of income do you currently have?According to Thomas Stanley, author of the book The Millionaire Next Door, the world’s wealthy have on average 7 sources of income.
Financial security comes from diversification If there’s one thing I’d like you to take away from this article, it’s that the more sources of income you have, the more financially secure you’ll be, because you won’t depend exclusively on one salary to live on.
This is why, if you want to be rich, you should forget about a salary. Because it alone, no matter how many zeros it has on the right, will not make you financially free and will expose you to great risk.
Additionally, the higher your earned income (active income), the greater your responsibilities will be and therefore, the less time you will have to build other passive sources.
What is the invitation? Think now about how to create new sources of income. Today you have many opportunities on the Internet, which are easy to start and the investment is minimal.
Saving is important, but it is not enough
We all know that we must save a percentage of our income. However, this is not enough to build wealth either.
If you only have one source of income, saving a percentage of it is not going to reduce your risk of having only one income each month.
So, what should you do with this savings capital? The first thing is to forget about spending it in December, use it on a whim, or an emergency (that’s what the emergency fund is for).
Savings are the foundation to start building your new source of income. Think of it this way:
Your savings are the investments your current salary is making, in the new source of income that will work for you, until you become financially free.
Ideas to turn your savings into investments
- Turn your savings into a down payment on your new home
- Turn your savings into the inventory of a physical business
- Turn your savings into a high-yield digital investment
- Turn your savings into an equity stake in a business
- Turn your savings into the launch of your online digital content business.
Regardless of what your decision is, the idea is to revive those savings that are dying in your savings account due to inflation, or lying dormant under your mattress, and send them to work for your financial future.
This will probably imply sacrifices, changes in your lifestyle, and even more work hours in the short and medium term, but it will be worth it, because you will be building your future and wealth.
Focus on the side of the formula that has no ceiling.
If you are reading this article, I assume that you want to improve your personal finances and take control of your economy.
Based on this, you should analyze and review which side of the formula you are focusing on. While not detailed, the following wealth formula could be defined as follows:
Income – Expenses = Available Capital
Within the income factor we have your different sources of income, both assets and liabilities. On the other side, we have your monthly expenses. Your outgoings.
To increase your available capital to invest, create new sources and have a better quality of life, and start building your financial independence you have only two options:
- Increase your income
- Decrease your expenses
Let’s look at each component of the formula.
Decrease your expenses
You want to be rich ? The vast majority of people have a scarcity mentality, so they consider all possible options to decrease their expenses. Among these are:
- Eliminate ancillary expenses
- Cancel subscriptions
- Stop buying coffee
- Suppressing likes and interests
And while this is a valid option, the reality is that it has two limitations: It is not sustainable over time, and its maximum contribution to the available capital formula has a ceiling.
No matter how much you want to reduce your expenses as much as possible, there will come a point where you can’t cut back any further without affecting your basic living minimums.
Increase your income
Now, on the other hand, we have income;
which have no ceiling, and can strongly impact your available capital when you understand your ability to create multiple sources of income.
This is not to say that you don’t review your monthly expenses, or that you don’t have a personal budget.
The proposal is that you dedicate yourself to increase your income, review your expenses so you don’t fall into the trap of consumerism, and use this surplus to finance your new sources of income.
This could be summarized as follows:
Work to raise capital (salary) so that this money then leverages your new sources of income (passive income), and builds your financial freedom (time, space and motion).
You may be overwhelmed by having to generate the equivalent of your active income from passive sources.
However, remember that this is a process: first do your research and find a passive income idea that interests you, ask yourself how to create your first monthly dollars, no matter how much it is, just that it is an extra income different from your job.
That’s how you start. Remember that empires are not built in a day. They take time. So take the first step today.
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