Where is your focus?

When you decide that you want to make more money, do you focus your efforts on --

     Increasing income?

     Decreasing expenses?

     Acquiring assets?

     Eliminating liabilities?

Most people focus on creating more income by working more. The big downside of this approach is that your ability to generate income is tied directly to your personal time and effort. In other words, if you want more money you have to work more. But do you really want to work more? I'm guessing you don't. There's also the fact that, if you're an employee, you pay more taxes the more money you make, which means you have to work even more... you get the idea.

Another common approach is to focus on reducing expenses. The problem with this is that no one gets rich clipping coupons and saving a dollar here and there. Frugal spending can help limited funds stretch farther but will not lead to financial independence.

Eliminating liabilities like home and school loans is also a popular strategy. While paying off bad debt can be a good strategy, be sure to first ask yourself if your money could be better spent buying assets which could then help pay off liabilities like loans and mortgages. If you are a knowledgeable investor you will likely find that you can get a better return on your money through buying assets than paying off low-interest-rate debt.

If your goal is financial independence, then your primary focus should be on acquiring assets that generate income. 

The reason most people focus on working for income, reducing expenses, and paying off liabilities and not acquiring assets is because buying and managing assets takes knowledge and skills they simply don't have... yet.  Sadly, this is not something that is taught in school, and most people can't learn it from their parents because their parents don't know how to create assets either. It's up to you to acquire the financial education you need in order to build assets that give you the income you need to live the life that you want.

Original publish date: March 25, 2010