The first step to wealth is offensively simple!

The first and most important step is to understand & take ownership for how you currently manage your money. Have you done the 2 minute exercise in the last blog? If not take 120 seconds to do it now.

So, are you moving forward on your income or are you going backwards?

Are you spending less than you earn or are you spending more?

If you're moving forward that's great! Are you spending 10% less than you earn? If so skip this blog and move on with something else for today... I look forward to talking to you about Step 2.

If you're not going forward as quickly as you would like or if you're going backwards - congratulations - why? Because you know where you're heading! It's so important!

Now, have you taken ownership? Or do you have excuses as to why last year was a special year where it wasn't your fault that you spent more than you earned... don't take this the wrong way, I know sometimes things go wrong and it's not necessarily your fault but over the period of a year you have the chance to compensate for life's unexpected hiccups! If you were robbed and you had to pay an excess of $1,000 that's a big cost and would likely break the budget for that month... but only you can choose to take ownership for that unexpected expense and only you can choose to spend less elsewhere to make sure you stay on track for the coming months.

Don't rely on a future pay rise to get you back on track. It doesn't work that way. You need to take ownership of how you spend your money now.

As soon as you take ownerhsip you'll find that spending less than you earn becomes much easier. When you drop all excuses it's as simple as knowing where you're up to and making the small decisions each day to stay on track.

Boringly simple? You bet.
And that's why I believe many intelligent people find it hard to get wealthy.
It's so easy they miss the first step.

Once you've got this one under control it's time for Step 2...

Is your intelligence making you poor?

Ok, so I've stated that Intelligence is Expensive but how do you know if you're intelligence is actually making you poor?

It's very, very simple.

Look at your bank statements from one year ago and add together all of the cash in your savings accounts. Then, take from that figure the total of all your debt on your credit cards, personal loans and home loans. This is your starting point. (If you have a home loan it is likely that you will be starting with a negative figure)

Now do the same for today.

Is today's figure more positive than last year's figure?

Notice that the above equation has nothing to do with the size of your income? If you earned $50,000 and went forward you're a better driver than someone that has earned $300,000 and going backwards (granted they might be in a nicer car but you are the better driver!!)

Ideally you'll have saved at least 10% of your income so if you earn $150,000 you'll have saved $15,000. (If you've achieved this, that's great!! Be sure to stay tuned to future blogs to check how well you're doing at making your money work for you).

Now if you own property the values may have gone up and that's great. But in this exercise, unless you have bought a new property, and used your 10% savings for that, it's irrelevent to the equation.

If you didn't move forward, did you stay in the same position or did you go backwards slightly (or even a lot)? Why? Be careful how you answer this. Every year there will be unexpected expenses (it's the same when you drive a car - the car in front stops suddenly, children chase balls onto the road...things happen). The key is to drive safely and plan for the unexpected.

Now if you're not quite on track, it's not all doom and gloom... tune in next week for what I believe is the most important step in wealth creation...

Intelligence is Expensive

During my time in finance one point has become abundantly clear - the key to wealth creation has very little to do with the size of your pay packet. In fact, I would go so far as to suggest that a higher income can sometimes make it more difficult to become wealthy!

There are a few reasons for this but the first one is:

The more intelligent you are, the more you're likely you are to earn a good income from Day 1 in the workforce and the more likely you are to get trapped into the rich lifestyle cycle.

The reason for this is that having high earning capacity is a bit like owning a fast car. If you know how to drive it and watch your speed it's all good. But if you don't drive that well, or if you forget to watch the odometer you can end up crashing & burning or, at the very least, you can end up with lots of speeding tickets.

A good income from an early age often leads to the creation of a lifestyle that makes you feel rich - a life with the latest gadgets, cars and a steady diet of good food and fines wines - but the rich lifestyle is the very thing that keeps you poor. In essence, you earn a great income but most of it's already spent before it hits your bank account.