I grew up middle class as a daughter of immigrant parents, and the priority for our family was faith and education. My dad was a personal development junkie (like how I am today), but because money is such a taboo topic, I didn’t learn much about taxes, debt, and wealth until being exposed to it via social media in my 20s. What I knew of those topics growing up was:
- Don’t co-sign on a car for anyone under any circumstance
- Don’t get a credit card, they’re bad
- You owe the IRS money because you are a freelancer
For the past 12 years, I’ve been making money as a freelancer (and now entrepreneur) by designing Myspace pages, then websites, then blogging, then coaching, live events, etc. I had two major goals in my 20s – make six figures, become a millionaire. I did both 4 years apart.
But what I learned is that wealth isn’t about making a lot of money.
You don’t have to make a million dollars a year to be a millionaire.
Building wealth is about accumulating and owning assets so you can build your net worth.
Your net worth is how many assets you own minus the liabilities you have/owe.
Examples of assets that increase your net worth are:
- Cash on hand (liquid cash — meaning it’s money you have immediate access to without little to no penalties to access it.)
- House (with equity or that’s paid off)
- Car (with equity or that’s paid off)
- Investment accounts (stocks, retirement, etc)
- Gold, jewelry, etc.
I view an asset as basically anything you can sell for cash or that can allow you to generate cash.
Examples of liabilities that decrease your net worth are:
- Car loans
- School loans
- Mortgage
I view a liability as anything that you’re consistently paying for — especially with interest — that isn’t going to make you money. The difference between a liability and an investment is that an investment is putting money into something that is meant to make money while a liability is causing you to lose money over time.
An example of your net worth is:
- Asset: $10,000 in the bank
- Liability: $25,000 car loan
- Net worth: -$15,000
To be a millionaire, you have to have assets that are valued at over $1,000,000.
According to a Deloitte study, the average net worth of millennials is $8,000. 🤯 There are a lot of contributing factors to why my generation has a significantly lower net worth than previous generations. School loans and the overall cost of living have shifted drastically. So while we’re getting advice shoved down our throat to “spend less”, the reality is that we need to make more. Spending less is only a small and temporary fix.
To make more, we have to start off working more, which is why we are also a burnt-out generation with increased mental health issues. To be very frank, the path to building wealth will be at the expense of your mental health (even if just temporarily). Simultaneously, being unable to make ends meet also affects your mental health. Either way, you’re somewhat screwed, and I’d rather you be screwed with money… so let’s get into it.
The first part of building wealth is having income streams that exceed your expenses.
How are you making money consistently? Most people have a job where they are getting a recurring paycheck (weekly, bi-weekly, 2x/month, or monthly). I recommend that your income exceed your expenses by a minimum of 3x. For example, if your expenses are $2,000/month, you should work to generate $6,000/month.
As I already stated, the goal is not to simply generate money, it is to hold on to it. This is why budgets are important. How much of that money is actually YOURS vs it being for other bills?
My first recommendation is to save 3-6 months worth of living expenses. This will require you to analyze how you’re living so you can reduce your expenses and spending.
Unfortunately with the cost of living, a 9 to 5 paycheck is oftentimes not sufficient to maintain a life/lifestyle AND save. Because of this, many people work a second job, start side hustles, or opt for full-time entrepreneurship in order to bring in additional income. The average millionaire has 7 streams of income. The goal, eventually, is to not have to trade time for hours for each stream.
FIRST TAKEAWAY: Make money with a job, business, or side hustles so you can afford your lifestyle 3x over and save 3-6 months of expenses.
Here’s an example of how you can start with this initial goal.
Let’s say you make $3,500/month after taxes at your job. Each month, your FIXED bills are as follows:
- Rent: $1,500
- Car note: $300
- Student loan: $400
- Utilities: $90
- Gym: $30
Total Fixed Expenses: $2,320
(This is a loose example and you should take a look at every bill you are paying monthly and write it down.)
That leaves you with $1,180.
Then you have your VARIABLE bills, i.e.:
- Gas: $62
- Nails: $78
- Food: $285
- Hair: $75
Total Variable Expenses: $500
(This is a loose example and you should take a look at your consistent spending habits that maintain your lifestyle and write it down.)
That leaves you with $680 (which is way better than most Americans). IF you are fortunate enough to have $690 leftover, then I recommend doing the following:
- Emergency Savings: $500
- Personal Savings: $180
Total Savings: $680
*I recommend treating your savings like a fixed bill so it’s a top priority rather than something you do as an afterthought. Learn more about that through my budgeting highlight on Instagram.
Personal savings can be for a big purchase you want to make (family trip, new bedroom set, whatever.) Of course, these things can be paid for with a credit card, but I encourage you to avoid credit card expenses until you have your 3-6 months of emergency expenses and more control over your money.
Your emergency savings goal in this case, at minimum, would be $6,960 – $13,920. This is based on your basic necessities of fixed expenses which equated to $2,320 in our example.
If you save $500/month for emergency expenses, it will take you almost 14 months to save just 3 months of expenses. 🤯 This is actually really mind-blowing to me, and it’s why most people are truly one paycheck away from homelessness. 😞 The cost of living is insane and I believe most people have to work way too hard to make ends meet. Knowing that, I try to share as much free education as possible on building wealth and starting a business using your skill sets. I digress…
Building wealth isn’t something that needs to be rushed, but it is something that needs to be planned.
We haven’t even touched on the topic of debt repayment, but at the end of the day, in order to save faster or pay off debt faster (so you can increase your net worth), you simply need to have more money at the end of the month.
I encourage people to find a way to make MORE money — even if it’s just for a season — because you truly cannot “budget” yourself into wealth. There are only so many expenses you can cut.
When it comes to making more money, as I stated, you will need a higher-paying job, a second job, or a side hustle. You need to figure out how much more you want to bring in to hit your debt repayment and savings goals. Once you know this number, you know how much you need to be paid, how many hours you’ll work, and how long you need to keep the extra job or run the side hustle. This may require upfront expenses (investments) like sprucing up your resume, getting your LinkedIn revamped, having someone help you get clients, etc.
Again, this can’t be rushed, but having a plan can make a light at the end of the wealth tunnel a lot more visible to you.
Be patient with yourself and the process.
Let’s stop here because this can all be overwhelming.
Your homework:
- How much do you make?
- How much are your fixed bills?
- How much are your variable bills?
- How much money do you have leftover at the end of each paycheck or each month?
- How much debt do you have?
- How much do you currently have saved in emergency expenses?
- How much do you need to have saved in emergency expenses?
- Based on your current monthly income, how much will it take you to save 3 months of expenses?
- How much more additional income do you need to make to cut that number in half? What ideas do you have to generate more income?