Sep 7, 2014

The wealth building equation!

What people who are taking efforts to build up wealth often forget, is that wealth is the resultant of a two part equation. One part is income, but the other part is cost. Building wealth is nothing else than making sure than your stream of income is consistently bigger than your costs. So simple but most people concentrate solely on their stream of income. Even worse, there are people out there that, although their intention is to build wealth, enhance their cost of living subsequently or even more than the growth of the income stream.

One part of the equation: the cost of living

Reducing your costs does not automatically mean that you have to reduce your standard of living. The purpose is to keep same degree of luxury by critically evaluating your providers. See if you can cut your costs by just changing service provider. Most of the time service providers have great welcome discounts for new customers.Take advantage of it! If necessary change every year. Concentrate yourself first on the ongoing recurring cost, like utilities (gas, water, electricity and phone) and insurance costs. Those markets are very competitive so it is not hard for you to cut your costs without give in on your standard of living.

Although the process of being critical about my cost of living is for me ongoing now, have I start changing my providers end of last year. I've changed my providers of electricity, gas, phone and insurance and picked some great bargains because of the discount they provided new customers. But for now I do not want to go into that in more detail because it is a recurring process and it better to post about it when they occur.

The other part of the equation: the stream of income

You can  divide your stream of income into two parts, your active and your passive income. Your active income is the income you generate from your normal work, your professional career. It is normally very rigid, hopefully for you very stable and sustainable The downside is that it is hard for you to have influence on, especially not on the short run. If you want to increase your stream of income short-term, you have to concentrate on increasing your passive income capabilities.

Increasing my passive income stream was one of my resolutions for this year. How I did it? You can follow my endeavours in my blog when I go forward in this process.

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