Hello and welcome to Money Girl’s Quick and Dirty Tips for a Richer Lifehosted by Elizabeth Carlassare. 

Today’s topic is wealth secret #1 for beginning investors.

When I finished college, like many grads, I was burdened with student debt and I was really, really eager to pay it off. It felt like a weight on my shoulders. I was thrilled to start earning a full-time paycheck when I finished school. As a student, I was used to living on very little money and I continued to live this way when I started working. I lived well below my means and paid off my student loans as quickly as I could. After I paid them off, I continued to live below my means and was excited because I could invest the difference. I was able to earn money two ways, from my own work and also from investing.

The difference between what you earn and what you spend is your golden goose. It’s your lever. It’s the money you have at your disposal to save and invest. It may seem completely obvious, but wealth secret #1 for beginning investors is to spend less than you earn. Consistently spending less than you earn is the most important financial habit to develop to achieve wealth. It’s the first step to creating financial abundance in your life.

Some people don’t ever take this first step. With such easy access to credit cards, many people can’t resist the temptation to overspend. They find that there’s always more month left over at the end of their money. They get into debt and become weighed down by monthly credit card bills. But don’t let this be you! You can set yourself apart from the crowd by making the difference between what you earn and what you spend as big as possible.

And, if your lever isn’t as large as you’d like to be right now, you have two simple choices: You can earn more or spend less. But I say why not go for both? Is there a way you could increase your income? Could you ask for a raise? Could you moonlight? Could you take some strategic action to grow your business?

And, if you’re spending $5 a day on a Starbuck’s Frappuccino and a scone, why not cut the calories and the caffeine, and keep the $5 instead? That $5 a day is $150 a month, which is $1,800 a year. It adds up! And that’s after-tax money. How many hours did it take you to earn those $1,800 after-tax dollars? What expenses could you reduce to invest more money in your own financial future? Could you switch to a less expensive cell phone service? Could you eat out just a little bit less?

One important strategy you can use to live within your means is to “pay yourself first”. With the money you earn, pay yourself a certain amount each month for your own saving and investing. Take 10% (or more if you can) off the top of what you earn and save it, and then use the rest for your living expenses.

If you do have high-interest credit-card debt, set some concrete goals to pay it down. One way to keep motivated and prepare yourself for the next stage is to raise your financial IQ and educate yourself about investing. After you’ve paid down your high-interest-rate debt, you’ll want to create an emergency fund equal to three-to-six months of living expenses. At that point, you can make a really exciting transition: from saver to investor. Instead of saving money each month to pay down your debt or build up your emergency fund, you’ll have that money to invest. So get yourself in position and develop the mindset of an investor.

Invest in educating yourself about wealth building by reading books and talking with people who are financially successful. If you want to become wealthy, then study wealth and put what you learn into action. Business success expert Jim Rohn puts it this way: “Formal education will make you a living; self-education will make you a fortune.” I absolutely love that quote!

Today, I’m giving away two copies of Jim Rohn’s 7 Strategies for Wealth and Happiness. This week’s winners are Jason in Falls Church, Virginia and Linda M. Congratulations, Jason and Linda! Check your email for instructions.

Cha-ching! That's all for now, courtesy of Money Girl, your guide to a richer life.

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