Do you have a household budget? If not, you’re not alone.
Only 41% of people follow a budget, according to a study by U.S. Bank.
Dave Ramsey, Suze Orman, and all the other personal finance gurus have a lot to say about getting out of debt and budgeting.
And, rightly so. But tracking your expenses and sticking to a budget is Personal Finance 101. If you want to really get ahead you need to go further.
Budgeting alone will never make you rich, but here’s what will…
Why Budgeting Won’t Make You Rich
The median household income is around $60,000 per year. If you fall somewhere near that number, you know how hard it can be to make ends meet and still provide for you and your family.
Budgeting can help you see where you may be overspending, but let’s be realistic. How much can you actually cut from your expenditures? $5,000? $10,000? Maybe even $20,000?
I’m not knocking frugality and controlling expenses where you can. Saving an extra $5,000 a year is nothing to sneeze at. But will it make you rich? Probably not.
At the end of the day, it comes down to one thing – mindset.
Budgeting causes you to operate on a scarcity mindset. One that says there isn’t enough to go around, so you have to horde and conserve what you have to succeed. This works to an extent – if you’re spending more than you earn then you certainly need to learn how to run a tighter ship.
But once you’ve gotten your spending under control, a scarcity mindset that borders on extreme frugality can be detrimental to building true wealth. To grow your wealth.
So how do you really build wealth? I’m glad you asked!
Change Your Mindset, Grow Your Wealth
It all comes down to mindset. Truly wealthy people ditch the scarcity mindset for one of abundance.
Instead of cutting out your daily coffee to save a few bucks, wealthy people ask “how can I afford it?”
This is a subtle shift in thinking, but an important one. It opens up a whole new world of possibilities and opportunities. There are literally trillions of dollars out there. What can you do to get a few thousand of that – or even a few MILLION – why not?!
If you make $60,000 per year, frugality only gets you so far. If you’re extremely dedicated, maybe you can save $20,000 of that per year. There is an upper limit on building wealth through frugality – you can’t spend less than $0. But there is no upper limit on how much you can earn – either through side hustles, career shift/promotion, or passive income investing.
Our Story… When my wife and I started contemplating having kids, we wanted her to have the option to stay home with them. Losing an entire income was a big blow to our budget. All the frugality in the world wouldn’t have made the numbers work in our favor. (And adding kids to the picture certainly doesn’t decrease your budget – ask me how I know…)
The only way we could see to continue growing our wealth at the pace we wanted to was to turn to the other side of the equation – making money. We ended up choosing to invest in real estate – which is both a side hustle and an eventual passive income source. This choice has allowed us to replace my wife’s income and more since our first child was born 4 years ago.
Was it hard work? Yes! But we had a big “WHY” behind our efforts which pushed us to adopt an abundance mindset and get out there and actually put the “hustle” into our side hustle.
3 Ways to Grow Your Wealth (Without Extreme Frugality)
As I mentioned above, there are 3 main categories of increasing your income and growing your wealth after you’ve run out of options in your budget: starting a side business, career promotion, and passive income investing.
#1 – Start a Side Business (or Side Hustle)
I get it. Who has time to work a full time job, raise kids, AND run a business on the side?
The answer, surprisingly, is a lot of us. When we first started our real estate side business, I didn’t think we had any extra time in our schedule. But as it turns out, as priorities shift you make time by giving up other things, at least for awhile.
With most side hustles you can start small and scale up from there. Maybe you only have 5 hours a week to dedicate to your side hustle. If you’re pulling in $25 per hour, you can make an extra 500 dollars a month! $500 won’t change your life, but it can certainly provide a good start to increasing your savings and investment accounts.
There are plenty of opportunities to become a freelancer and sell your skills at an hourly rate. If you’re an accountant by day, you could offer freelance bookkeeping or tax services. If you enjoy writing, you can become a freelance writer for blogs or other publications. These are just a few examples, and I know people that do each of these and make upward of $100 per hour as a freelancer!
The best part is that most side jobs you can do from home in your pajamas. I can say from experience this definitely makes the hustle more enjoyable! If you’re short on side hustle ideas, be sure to check out this list of legit ways to make money from home.
#2 – Generate Passive Income
I have some bad news. Most passive income ideas aren’t really passive. Sure there are bloggers out there making 6 figures a year working a couple hours a week, but what they don’t tell you is how much work they put in at the beginning to get there.
But the good news about creating passive income is that once you put in the work up front, you can start to generate a steady flow of income without much time commitment.
For example, when we first started investing in real estate, we didn’t have a lot of money. And while owning rental properties can be mostly passive, we wanted to grow our income faster. So we did our research and learned how to invest in real estate with little or no money up front. We used our time and skills instead, hitting the pavement to look for great deals we could put under contract and quickly flip to another investor for a profit.
After generating some income, we invested it back into the business by buying and flipping houses ourselves. We also started to use some of the profits to buy more passive rental properties that would generate income without as much involvement from us. 6 years after we began our real estate investing venture, we do very little flipping, and have even sold some of our rental properties to invest in even more passive crowdfunded commercial real estate!
Unless you already have money to invest, most passive income ideas require work up front: blogging, dropshipping, selling printables on Etsy, you name it. But the payoff is a truly passive income stream down the road, where you can actually make money in your sleep.
#3 – Advance Your Career
It’s extremely popular to talk about side hustles and passive income, but one great (and overlooked) way to increase your income and build wealth faster is through your career.
If you enjoy what you do, investing your time growing your career and climbing the corporate ladder may be your best move. If you get a $10,000 raise, that’s an extra $10,000 per year, every year, as long as you keep working!
Getting a promotion and $10,000 raise isn’t all that uncommon. On the flip side, generating $10,000+ a year through a side hustle takes a lot of work and dedication. If you spent that same amount of time learning new job skills and impressing your boss at work you can still get the same benefit without having an outside business to figure out and manage!
Grow Your Wealth Without a Budget
While controlling your expenses is a must, you can only cut back so far by keeping a budget. Once you’ve gotten to that point, earning more money is the best way to grow your wealth.
Whatever path you choose to make more money, it goes without saying that as your income increases, you should invest that money wisely and avoid lifestyle inflation. True wealth is created by purchasing assets (such as stocks, bonds, real estate, etc.), not “stuff”.
So get out there and make things happen and grow your wealth with the freedom of knowing you don’t have to pinch every penny to become wealthy. There are so many opportunities to make money through building something of your own, or working harder to set yourself apart at your current job. Invest the extra income wisely, and you can become a millionaire before you know it!