Increasing your income
If you followed the steps mentioned in reducing expenditures you've reduced your cost of living and this way you've already increased your income. If you haven't done that yet, I recommend a step back and start there :) (reducing expenditures).
If you did, now you have an available pot of money you didn't have before. What to do with it?
Make your money work for you
You can do 2 things with your available money:
Option A | Buying Liabilities
By liability I mean all objects that lose value over time. A car, a bycicle, a Play Station 3, a computer, a motorbike, a new couch,... and the
list goes on and on...
Have you ever asked yourself the following question. "Do I really need all this stuff?"
Just think for a minute about the fact that the average person today is said to own 10,000 objects. The Spend Less Handbook: 365 tips for a better quality of life while actually spending less
We all buy liabilities. The key is to buy only the ones you need and stay away from luxuries that do not add up in value.
And what has to
be avoid at any price is to fall in the "credit card / loan trap".
Option B | Investing in Assets
By assets I mean things that increase their value over time. Education, property, shares, savings,... Obviously the value of the assets I just mentioned depends on what you study, the property you buy, the company shares you buy (and at which price), and which accounts you put your savings in. But that is what makes it interesting, if it were straight forward, everyone would do it. It only takes some time and the will to do it.
No need to say that option B is the one that we'll choose in order to make our money work for us. But, which assets should we invest in?
The 4 factors to consider in an investment
As mentioned in the Growing rich attitude chapter we don't want to buy some random asset. We are looking for low-risk high-return investments.But risk and return are not the only factors that play a role in the asset-selection process.
If you are reading this, the probability that you are resident in a capitalist country is quite high. And I'm pretty sure you know that the market price of almost everything is based on supply and demand, and as you may know the market price fluctuates, because supply and demand changes overtime. That means that the price of a concrete thing, object or (important) asset fluctuates, up and down.
But, does this mean that its value also fluctuates?
Is water less valuable only because people are not thirsty anymore? I wouldn't say so. The price of anything is based on the supply/demand rule,
not in its intrinsic value. And that creates opportunities for everyone if you are paying attention and have available money.
Here are the 4 factors I consider in every investment:
- Risk /Return / Price / Value
The lower the price, the lower the risk. And the bigger the discrepancy between price and value, the higher the chance to make a high-return.
Finding discrepancies between price and value
You can find discrepancies between price and value almost in every market, but remember we are only interested in assets. Discrepancies between
price and value regarding liabilities we'll make you save some money, but their value won't increase over time.
If the difference between asset and
liability is still not clear at this point I recommend reading Rich Dad, Poor Dad
Where do you look for opportunities? I personally look for them basically in two main areas:
stock market and property.
So far I've made most of my money in the
Stock market, learning from the same Master Warren Buffett did.
Learn how.
A last tip: be patient. There are times when it's hard to find a valuable underpriced asset. If you don't find, don't desperate. Save and wait until the right opportunity comes across.
Increase your ability to earn
This is the last golden rule you find in the The Richest Man in Babylon
What is the only thing in my life that will never change? The answer:You'll be always there.
The rest of things are temporal. Boy/Girlfriend, friends, parents, jobs, property, etc. will somehow disappear from your life at some point.
Invest in you, you are your biggest asset. The only way to invest in yourself is to learn and to experience. Don't be lazy to learn and don't be afraid of trying, never stop investing in the biggest asset of your life: you.
Learn how to set up a business and try it. Start small, but think big. The 4-Hour Work Week
Another 100% recommendable book is Wake Up and Change Your Life
