Daydream about quitting your job and doing something you love? Rather than simply dreaming, why not establish your goals and work toward a day when you have enough money or alternative income to quit? Here are some helpful tips that everyone can use.
Tip 1: Diversify your income sources
In addition to increasing your income, diversification can ensure that if one source of money dries up, you haven’t lost everything. Losing your job won’t mean the end of your income, and you will be in a position to ramp up one of the other sources to replace the lost salary. Continue with your primary job while moonlighting as a consultant or freelancer, or start a side business you can do in the evenings or over the weekends. Do something that comes naturally and you are good at. Ideally, try to make extra money doing something you enjoy.
Tip 2: Develop passive income streams
Even as you diversify your income sources, you’ll realize that there are only so many hours in the day. The beauty of passive, semi-passive and residual income is that these streams continue to generate money even while you are occupied at your regular job, meaning that you can increase your income exponentially without being limited to how much you can actively accomplish during working hours. Real-estate rentals, websites with affiliate links, information products, business interests, and royalties from published books, software programs, recorded music and photography are all somewhat passive sources of income, involving little to no active work as they keep generating money. You can also convert a secondary income source — say, a weekend ice-cream stand — into passive income by turning over the management and daily work to a trusted employee.
Tip 3: Pay yourself first
Make saving money a priority, and set aside a percentage of your income as savings. Take this out of your paychecks or profits each month before you pay the bills. Budget to ensure you’ll have enough to cover all your expenses, and increase your savings every time your income increases.
Tip 4: Avoid debt and high interest rates
Huge credit card balances and car loans are two of the biggest pitfalls on the way to wealth. A credit card balance of $7,000 at 18% interest will take four years to pay off with monthly payments of $205. Now imagine how much sooner you could meet your saving and investment goals with an extra $200 a month. If you haven’t fallen into the trap yet, avoid unnecessary debt and high interest rates. Put your money to work for you, not the banks.
Tip 5: Live like a millionaire
The Millionaire Next Door, that is. Mimic the frugal habits of self-made millionaires if you wish to join their ranks. They spend less than what they earn, research large purchases, avoid debt and pay cash for their vehicles. The very wealthy tend not to have especially expensive taste. Read The Millionaire Mind to learn how millionaires really live — you might be surprised.
Tip 6: Invest wisely and regularly
Don’t invest in things you don’t understand, and make sure you diversify your investments to minimize your risk. Set up automatic investment contributions, and participate in any employer-matching plans available to you. Structure your investments for your targeted retirement date, becoming more conservative and less aggressive in your portfolio as you come closer to relying on your investment earnings for living expenses.
Tip 7: Stay married
Divorce is one of the leading destroyers of wealth in American families. The cost of divorce, legal counsel, child support and alimony add up to severely limit your ability to save money and grow wealth. In addition, virtually all self-made millionaires have been married once and stayed married to the same person. This stability allows you to create more wealth and hold on to your earnings as a couple.
Tip 8: Track your finances
A written budget, whether it’s in your notebook or online at Mint.com, keeps you on track and gives you a visual representation of your overall financial picture. Keep track of your savings, investments and earnings and compare them to your goals. Go over your finances regularly, with weekly and monthly check-ins to stay on track.
Tip 9: Borrow carefully
Look for the lowest interest rates available, and only take out loans that make sense for your financial situation. For some people, this will mean never borrowing money and saving up for an education, house or vehicle. Others are comfortable with low-interest loans that free up their resources to make more money than the loan costs. For example, with peer-to-peer lending, you can potentially bring your interest rates down to almost nothing, and then reinvest that money at higher interest rates. Evaluate the true cost of any new debt you take on. Be especially wary of taking out larger loans than you truly need, as paying them back can be harder than you think.
Early retirement or the opportunity to pursue your dream job? The choice is yours. Follow these easy tips and pretty soon the millionaire might not just be next door, he or she might just be living in your house.
What’s the best money tip you’ve received? Share it with our readers, below.