Spending your money wisely will give you the choice and freedom only wealthy men are able to enjoy. We don't want to build a budget that is focused on cutting the expenses to make them fit our income. Our goal is to build a financial plan that will help us increase our earnings. Here are the detailed steps to help you achieve this …
# 1. – Building a balanced budget
Our first goal is to build a balanced budget that will help us pay our regular expenses, save some money and still leave us with some money for fun.
You have to limit your regular expenses to 50% of your income. The farther you get from this number the harder it will be for you to become financially independent.
Remember, our goal is to increase our income with this budget. If you achieve the goal of living with half of your current salary soon you will have more money to spend. So, think of this as short-term sacrifice.
You will be allowed to spend 30% of your income on yourself. Burn the cash as you wish, but remember once it's gone the fun is over until you receive your next check.
Finally you have to save 20% of your income. There are no excuses; this is the money that will help us increase our earnings. If you fail here every other part of the plan will be worthless.
# 2. – Use your savings to buy assets.
You will buy assets with the money you save. An asset is a vehicle that generates passive income. Think of it as a money-making machine. It will put money in your pocket automatically. You won't have to work for it.
For example: you buy a house or an apartment and rent it. Or, you purchase stocks and earn money through dividends. Maybe, you can buy a camera and license your original material on a royalty-free website where customers will pay you a fee every time they use it. The alternatives are endless, and will fit every budget.
# 3. – Use assets to pay for liabilities.
You will use the money you earn, through your assets, to buy more assets and to pay for your liabilities. By adding more passive income vehicles to your portfolio you will increase your monthly cash flow, and you will be able to afford anything you want.
Do you want a new Ferrari? Increase your assets until they produce enough cash flow to pay for it. Once you buy your first asset and start earning passive income you will be able to replicate the process as many times as you want.