When I was 25, I lived in overdraft. The amount of consumer debt I had was greater than what my annual income was at the time, and my net worth was in the negatives. Over the last 25 years, this is what I’ve learned.
The idea of building wealth can feel uncomfortable, insurmountable, and unattainable. Depending on what stage you’re at in your business, the thought of building wealth means that there must be money left over, and sometimes there isn’t.
As an entrepreneur, the creation of wealth is a necessary part of your journey if one day you hope to not have to worry about money. While you and I may define wealth differently, neither of us can dispute that we need money to live.
Wealth should be the by-product of making good financial decisions in your life and business, and in order to make those financial decisions, you need to have clarity on where you are at and what you want.
Where do you start?
Start by looking at your current situation so you can see where you are at in comparison to where you’d like to be.
1. Know Your Net Worth
Calculate your net worth by making a list of everything own that is of value (think bank balance, investments, your home, etc.) and then make a list of everything you owe (credit card debt, mortgage, line of credit, etc.). Subtract what you owe from what you own. What you’re left with is your net worth.
2. Calculate Your Cost of Living
How much money do you require to live your life the way you do right now? Add it all up. The goal is not to shrink your lifestyle but rather to get clarity on what you need to live life the way you want.
3. Calculate Your Debt
Do you know exactly how much debt you have? The goal here is to chunk away at your debt in a more intentional way so that you can increase your net worth. Let’s say you have $100,000 in the bank and your debt equals $99,000. This means your net worth is $1,000. If you redirect new funds towards the debt, and your bank balance stays the same, your net worth will grow.
4. Gain Clarity
Look at your current situation and get clinical clarity around where you are at. This baseline is important because wealth can grow from where you are right now, but if you don’t know where you are right now, you have no way of knowing whether your situation is getting better or worse. Avoid shaming yourself if you don’t like what you see. You have to get honest about where you are at in order to improve.
How do you build wealth if you don’t have any money?
This is a great question, and my belief is there is money all around you. The world is an abundant place for those who are open to opportunity and willing to embrace change.
Here Are Two Ways to Start:
1. Spend Less Than You Make
The only way to build more wealth is to spend less than you make. When you read this, you might think that means you need to spend less—that’s not exactly true. While you can choose to cut your spending, the other way to spend less than you make is to make more.
Consider how you might do both:
- Eliminate unnecessary expenditures that don’t bring value to your life.
- Learn how to generate additional income.
There are a bunch of ways you can generate additional income, whether you own your own business or not:
- Increase your prices. That’s one quick and easy way.
- Create a new product or service to sell.
- Consider the creation of a digital product that is high-value and can be a revenue generator for you while you sleep.
- If you’re an employee, ask for a raise, or find a side hustle where you can make extra cash. Between freelancing and the gig economy, there are lots of ways to do this. Even if you’re providing a service on Fiverr, it’s not about the five bucks, it’s about building your confidence around your ability to do this. $5 can become $50, and then $500, and those $500s can add up to $5000s quickly.
- Sell stuff you don’t need. I sell things on Facebook Marketplace all the time. I do this because I want to use my experiences selling items I don’t need in my coaching practice to help my clients gain confidence in both selling, and in negotiating. Facebook is the best place to learn how to negotiate, you can be sure that 99% of the time, someone will offer you less than what you asked. The muscle you want to build here is negotiating. Always counter and ask for more than you think you can get, while it may not work every time, you’ll be surprised how often you get exactly what you ask for!
2. Learn more about money and numbers.
In Thought Readers, we read at least one book about money every year. Here are three books that are fantastic if you want to learn more:
- The Psychology of Money by Morgan Housel
- Money, Master the Game by Tony Robbins
- Rich Dad Poor Dad by Robert Kiyosaki and Sharon Lechter
In order for you to build wealth, you have to first define what wealth means to you. The very first time I did this in my 30s, it felt very uncomfortable to think about wanting to be financially worth a number that I perceived as quite high. However, now that I am in my 50s and have attained that number, I am a big believer in setting a goal that feels uncomfortable and sticking with it for the long haul.
Sticking with it matters because if you constantly move the goalposts and change what your definition of wealth means, you’ll never feel satisfied. The creation of wealth for the vast majority of people is a marathon, not a sprint.
Calculate your “number”, the one you need for your future life.
Grab a piece of paper and write down every single thing you want to have money for when you are “wealthy” and don’t skimp.
- Want to buy expensive wine? Add it to the list.
- Want to buy designer handbags, add that too.
- Want to fly business class? Go all in.
- Restaurants every night? You do you!
Once you have that number, and you know exactly how much money you need to live the lifestyle you aspire to have, ask yourself, “How much money do you need to generate the income to do this?” If you know that you need $100,000 a year to live a great life (for example) then how much money do you need to invest to pay you $100K a year? Maybe it’s a million dollars invested in something that pays 10% return? Maybe it’s a certain number of rental properties that are cashflow positive over next 20 years that pay you that much?
Start thinking about how you can start to invest money in places that will afford you the lifestyle you want later in life. Wealth building for most of us is a long game.
We can’t afford to rely on chance, if you want to create wealth, the time to start is now.