A common misconception about building wealth is that it’s only possible with a high income.
While a growing income obviously makes things easier, the preconception that it’s absolutely necessary ends up missing the core idea of wealth accumulation. A bigger paycheck helps only if that money is being used optimally. We all know of various celebrities that have squandered millions of dollars and declared bankruptcy because of poor spending habits.
Instead, building wealth is about making more than you consume, and then saving the difference. This means that the equation can be tackled on both sides of the spectrum, and that almost anyone can take steps to be more financially secure if they make smarter choices with their expenses.
Building Wealth on Minimum Wage
Today’s infographic is from InvestmentZen, and it explains that even though accumulating wealth while living on minimum wage is extremely difficult, it is possible with some adjustments.
We think that this is an interesting premise for people of all income levels to learn from. That said, it’s also worth noting that this infographic assumes that the person on minimum wage is quite flexible with their living conditions and time. For a single parent or for someone supporting an ill family member, circumstances are considerably more difficult.
If building wealth is a priority, then it is a possibility regardless of your profession and income level – that’s why the above math can be applicable to practically anyone.
Cutting Expenses is Key
If the daily Starbucks habit of $5 lattes brings you joy, then keep doing what makes you happy.
However, if accumulating wealth is a priority, then there may be tough decisions to make. Cutting unnecessary expenses is the single biggest factor that can tilt the wealth equation in your favor.
Here are the key expenses that someone on minimum wage can consider cutting, to make an immediate impact:
- Moving to a more affordable city can cut living expenses considerably. It’s hard to accumulate wealth in Manhattan or San Francisco, but is much more likely in Buffalo or Memphis.
- Eliminate commuting. Cars are expensive, and it is possible to get a place close enough to work to bike.
- Cut some wires, particularly cable. After all, it’s 2017 – just go with internet and Netflix.
- Don’t eat out, unless it’s absolutely necessary.
- Skip most purchases of new clothes. Instead, make thrift stores your new best friend, and don’t be afraid to mend holes in clothing.
- Cut expensive activities, and rediscover that the best things in life are free. Playing many sports can be free (or cheap), and public libraries are free (or cheap).
Once that’s done – it’s all about investing in yourself.