Don't Resolve to Save More Money
Why Making, Not Saving, More Money is the Key to Financial Success
If I had a dollar for every time I heard someone say they were going to save more money in the New Year, I'd be an even richer woman. And if I had a dollar for all the articles that come out telling you how to save money, I'd be the richest woman in the world!
It's wonderful that so many people are looking how to get financially healthy this time of year, and the fact that people are ready to read and learn more is a great opportunity.
Unfortunately, it's an opportunity that is often squandered with unhelpful and sometimes even harmful advice.
Standard issue financial advice
Take for instance and article on the website EmpowerHER.com called " 9 Ways You Can Start Saving Money Right Now," in which the author gives the following ways to save money:
Stick to a budget
Contribute to your 401(k)
Eat at home
Buy on sale
Buy and sell at consignment or resale stores
Buy discounted gift cards
Use those gift cards
With the exception of stop smoking (which you should do whether you save money or not!), these suggestions can be summed up in two ways:
I don't need to rehash here why contributing to a 401(k) are a recipe for financial mediocrity. See my previous post, "The Real Reason Why Women Struggle in Retirement," for a refresher course.
How to budget like a rich person
And when it comes to budgeting, if you're not using your budget as a way to think larger about your financial possibilities, and instead using it as a way to cut expenses or know how much "extra" money you have to spend, you're losing out.
And that's how most women budget: as a way to track income and expenses, but not as a motivation for changing your financial picture. For most, it all comes down to two things: cut expenses and save money.
But that's not how the rich budget. They don't look to do either of those things. Perhaps a story will help.
How can a liability be an asset?
A number of years ago, Robert came to me wanting to buy a new luxury car. We had the money to do the purchase, but we hate to just look at our "extra money" and then buy whatever we want with what is left. If we do that the only thing we get is a liability and less cash.
So, Robert and I decided that he could buy the car-after he acquired an asset that would cover the costs with the resulting cash flow. Long story short, Robert found the asset, acquired it, and then purchased his car.
The best part is that once the car was paid off, we still had an asset making money for us each and every month.
The importance of passive income
What's the key to this approach? Passive income.
Most people make money only through earned income, that is things like a salary or bonuses. In order to make money, you have to keep working. In this scenario, the only real option is to manage your income and expenses and make sure you don't spend too much.
With passive income, your assets make you money, even when you're not working. So by making your primary expense one of purchasing assets, you use your expense money to create even more money. In the process you can then afford even more luxury items and splurges, while still building your wealth.
Resolve to make more money
When you look at money advice like the list I cited above on how to save money, the real tragedy is that it perpetuates a poor mindset about money. For instance, deal hunting like couponing, sales, and discounted gift cards take a lot of time and energy. Do you save money? Yes. Does your financial intelligence grow? No. The only knowledge that grows is the knowledge on how to save more money-not make more money.
Conversely, if you spent as much time and energy learning how to make more money through business and investments as you did learning how to save more money through coupons and deals, you'd be much better off financially in the end.
In this holiday season, I'm happy you're thinking about your financial future! But my encouragement is to start thinking about how you can make more money. In the process, you'll save more, grow more, and enjoy more in life.