The process I have established for increasing income and becoming wealthy involves five general steps, which are:
So once you have developed the right mindset for increasing your income and building wealth, it is critical to know what level of income and what financial net worth you need to be happiest in life (NOTE: this assumes you have determined that more money and wealth are truly part of your personal Definition of Happiness. If you haven’t already done this, click here to go back and do that now).
So, what level of income do you need and want? What financial net worth would be the ideal for you?
These are two different questions which must both be answered before you can proceed with the process.
It is a fairly straightforward process, but there are a few twists to the question. For some people, the answer is simply to have an income that pays the bills. For others, it’s important to have an income which not only pays the bills but also allows for various “luxuries” as well. For yet others, the answer is much higher, with a multi-million dollar income as the level that’s needed for complete happiness. For others still, their income must be sufficient to allow them to quit “working for a living” at a certain point in time and maintain their desired lifestyle (this is called “financial freedom”, which is explored in a different area).
Whatever the answer is for you, the process is fairly simple for this step. What it involves is first to know your current level of expenses and the expenses associated with your desired lifestyle.
Once you know these two things, the next thing to do is establish your target net worth, which is essentially a measure of your personal “financial value”. Calculating net worth is a simple equation:
Net Worth = Assets (what you own) – Liabilities (what you owe)
You must establish your target net worth at this point because if that net worth is relatively high (millions of dollars, for example) then your income – and investment strategy – must be adequate to account for the building of this high net worth. This is where it can get a bit complicated. But not to worry, we will get to all these issues in time.
For now, just make sure you know the 3 things above:
Total current monthly and yearly expenses: $_________
Total monthly and
yearly expenses for your desired lifestyle: $ ________
Total target net
worth (by when): $___________ (by __ /__ /2_____)
To get these numbers, you’ll first have to take the time to list every expense you have right now. That includes both recurring monthly expenses (like electricity, car payment, mortgage or rent payment, food, school, phone, etc.) and non-recurring or other expenses like estimated medical bills, annual property tax payments, or quarterly income tax payments.
Then, if your goal is to just make an income that pays these bills, that’s your monthly and yearly income number.
If your desired lifestyle, however, includes things like a bigger home, a second (vacation) property, regular travel, a nicer car, or other increased expenses not currently being incurred, these must be listed next, with estimates for each on the monthly and annual costs associated with each. This can get a little tough, but it’s important to go through the process.
Once you have these expenses estimated – both monthly and yearly – then this is the number to add to the previous (current) expense level as your “new” required income. Don’t forget to add in the upfront cost of any of these items – which you must put aside as savings from your income.
Now, net worth is a bit different. If you have never calculated it, you should – and then calculate it at least every year (click here to get a simple, free net worth calculator): http://cgi.money.cnn.com/tools/networth/networth.html
The first objective is that your net worth should be positive - in other words, your assets (what you own) should be greater than your liabilities (what you owe). The next objective, generally, is that your net worth should be increasing over time – especially if you want to retire with the same (or better) lifestyle than you have now.
Then, depending on the answer to the question about your desired net worth, there are many things you may need to know and do to get to that point. Generally, it means saving and investing a percentage of your income (so you must have an income that allows for that).
The next couple of blog posts (September 3rd and 10th) will address the income issue. In addition, this week’s “Product of the Week” can help, too...
Happiness Product of the Week:
Tips on Becoming a Millionaire
This week’s “product” is really a blog on various tips to becoming wealthy.
Check it out by clicking here.
BeHappy! my friends
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