I wrote before about a survey that indicated that about half the people questioned could not come up with $2,000 for an unexpected expense. That’s a bit eye-opening, and puts into perspective the reality that many people are living.
Of course, as a personal finance blogger, I support a different approach. I’ve written about this before – my thought is that we need to focus on the following four money steps:
- Manage the big risks
With respect to the first three, we can work backwards to determine where our wealth building time should disproportionately go. Here is how I see it:
- We of course want to invest our money wisely and not be too conservative with our money. After all, rate of return is quite important, and can really supercharge our retirement savings when we earn a few extra percentage points and it compounds over time.
- That being said, in order to invest our money, we need to be saving some in the first place. This means that we should make sure that our expenses are lower than our income. The bigger the gap, the better off we are.
- Of course, in order to save money, we need to be making money! That makes it imperative that ensure that we’re making money and growing our career. Additionally, we need to not just focus on growth, but also be sure to protect our income and careers too. This is where managing big risks come into play.
This illustrates that it all starts with income. Without it, we can’t save, we can’t invest, and we can’t get started on building wealth. Unless there is a windfall expected in the future, that is.
Now, this probably applies even more to people early in the retirement savings process. The younger you are, the more you need to focus on career income. As we get older, and money works for us (hopefully, right?), we might still need to work – but will then want to spend time protecting our nest egg and preserving capital. So things can change over one’s lifetime journey with money.
Yet, I find that there is a lot effort put forth in terms of saving as a primary strategy for building wealth. Of course it’s a critical part of it, but I think many people find income to be almost a “given” or assumed part of the equation.
I know I write quite a bit about saving money, and even some situations of extreme frugality in the Squirreling Gone Wild series. Admittedly, it’s fun to find ways to save – at least for some of us!
But let’s not lose sight of where it all starts: making money. Just a friendly reminder here to remember how important it is when deciding how to spend our money-related time and energy!
My Questions for You
Of the 4 factors above, which do you think is the primary factor in building wealth?
Where do you focus more of your time? I’m also interested in knowing why.