I recently sent out a survey to you and other subscribers about what personal finance topic you would like me to cover on this blog. Unanimously, all of you said “earn more money”. It surprised me a little, as I thought there would be at least some folks who would say “investing”, “getting out of debt”, “saving money on commute” and others.
But the truth is:
You will also earn more money by doing all those!
It’s not a trick question. There’s always been a misconception about what earning money is all about. Earning more money doesn’t have to be a totally different revenue stream that you have to create (which would take more than a post to explain).
The definition of earning more money is to keep more cash in your pocket, period. The cash could already be in your pocket yesterday, or it could be cash coming in tomorrow. I’m not saying you shouldn’t try to earn more money by creating a new revenue source, I think you should. I’ve shown several tactics in my free report to get you started.
Again, what matters are cash flow and net worth. If you pay 100 dollars more off your debt this month, you will pay MUCH less interest in the long run. Let’s do a hypothetical case using a credit card calculator from Bankrate.com.
Say, you have $10,000 dollars in debt, and your credit card interest rate is 16%. Here are 2 scenarios I ran using the calculator:
Scenario 1: $200 monthly payment
Scenario 2: $300 monthly payment
In summary, if you just pay $200 every month, you will pay $1,123 in interest. But if you pay $300 instead, your total interest payments will go down to $692, a 40% drop!
There you go, instant cash flow of about $400 you could spend on something that you love! (or keep if you want)
Are You Ready to Earn More?
Once you straighten out your finances and build a very effective personal finance system that works for you, you can then spend your time on creating a new revenue stream.
I always tell the story of professional athletes who earn millions a year but go broke after they stop playing. Even if they didn’t understand money as much as you do, they would have been much better off if they had paid someone to design a financial plan for them.
It’s true that you won’t know for sure what will actually happen 10 years later, 5 years later, or even 1 year later. But as long as you have a plan to get to your ultimate destination, you will always be way ahead in the game. I’m gonna end this post with a quote by Thomas Carlyle:
Go as far as you can see. When you get there, you will be able to see further.
What would you do differently to earn more money today? Share you answer below!
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Ken,
I love these visible explanations of how my finances are affected by changing repayments or increasing investments. They make the picture much clearer and easier to understand. I’m a visual learner.
Regards
Paul
Great Paul! I figured it’s easier to explain with pictures and words. Also, it serves as a step-by-step so you can follow and do the same. And I’m very much a visual person too!
Hello Kien,
I read Buffet’s biography a few years back (the one before snowball) and he said one of the ‘a-ha’ moments in his life was when he understood compound interest.
Compound interest – and seeing the long term gains – colored many of his early investments.
It’s a great thing to understand. Wish I’d known earlier :)
Ivan
Hey Ivan! Compound interest is totally underrated.
Many people are not thinking about it because most are interested in getting quick wins. The quick wins are important to get you going and stay motivated (e.g. paying down your debt using snowball method), and might make sense for some.
But I still think people should think more about the long-term reward than the short-term gains.
Along the same line, I read “The Essays of Warren Buffett” during my equity valuation class back in college and it totally opened my mind. I love his analogy of a hamburger, that you want the price of burgers to go down, but why would you want the price of stocks to go UP? The idea stuck to my mind ever since.
Wish I’d known earlier too, but so does everything else =)
Thanks for hanging out!
Hey Ken
You know, I like how you simplify savings and earnings. Really. Such a simple difference of paying an additional $100 per month to get an additional savings of about $400 in savings from interests! Smart.
Perhaps you can also advice readers of instead of spending this money on whatever and however they like, to create an asset column where they can put in into businesses or ideas or projects that can yield higher profits in the long run ie 10 – 15 years with immediate positive cashflow (if possible).
Imagine savings of $400 per month, multiply by 12 months = $4800, add into a FD or the investment account that you used in a previous post with 1.1% interest, would yield you $4800 + $52.80 in the first year, second year will be $9600 + $106.00 and so on?
If you’d show your readers where to go or a selection of investments they can consider, perhaps that’d be a good add-on? =)
Correct me if I’m wrong ok.
Nigel