100 years ago, there were literally no “jobs” available. At least, not in the traditional sense of the word. You didn’t have to wake up at 7 in the morning, freshen up, gulp down your coffee & run blazing out the door so you could reach work at time.
Nope.
You also didn’t have to stay at work till 5 PM.
You didn’t have to work 5 days a week for the next 40 years of your life if you didn’t have to.
And you didn’t have to pay 40% in income taxes.
Needless to say, it was a simpler time.
Fast forward to 2018 & news headlines like “Millennials say anxiety about money is literally making them sick” are very common.
Income taxes are at an all-time high.
Jobs are moving away to countries where the labor is drastically cheaper – India, Pakistan, China & the Philippines come to mind.
Now it takes an average person 15-70 job applications to land one mediocre job.
In the legal field, that number spikes up to a scary 123 applications per job.
The hours are horrible, with people in some professions working 8-14 hours a day (Lawyers, investment banks etc.)
The icing on the cake is that even after putting in so much effort at your job, the vast majority of people aren’t getting ahead financially.
Nod if you agree.
You have been working harder & harder for the last 5 years but you probably get a mini heart-attack just from the thought of peeking inside your bank account.
Why?
Because there is a high likelihood of seeing a pitiful sum or a negative balance in there.
Trust me, I have been there so I can relate.
The good thing is that if this describes you, you are at the right place.
I have created this detailed article just so I can help people turn around their finances & can confidently say these magic words:
“In the last 12 months, I have increased by net worth by $XX,XXX”.
Yes, I guarantee that this guide will help you increase your net worth by 5-figures every year, should you choose to put what I mention into practice.
It will take work.
It will make you feel uneasy at times.
But I promise you that it will be worth it.
If you follow these strategies for the next 5 years, you will also be able to reduce the time to retirement by at least 10 years.
So let’s get right into it.
Financial sin #1: Your expenses are equal to or higher than your income
If you think this doesn’t relate to you – think again.
Statistically, 48% of Canadians & 55% of Americans live paycheck to paycheck.
This means that if they they miss out on just one of their paycheck, they will either have to borrow money from friends, family or from the dreaded payday lender.
The first rule of personal finance is that your expenses should be lower than your income.
If you aren’t following this rule, you are doing something very wrong.
I would recommend that you make a list of your income, taxes and all the expenses.
You would be surprised to see that you are just breaking even.
In many cases, you would be in the red.
Let’s go through a scarily-relatable real-life example:
Let’s assume you live in Ontario, Canada.
Your monthly salary is $3,000.
Your monthly income taxes therefore are $550.
Your rent is $900.
Utilities (water, electricity, gas) are $200.
You spend $300 on eating out every month.
Your car insurance is $180 per month.
The car payment is $300 per month (irrespective of whether it is a lease or a finance).
Your “miscellaneous” expenses are $300 per month.
And finally, because you can never pay your credit card purchases in full every month, you get charges $120 per month in interest.
If you subtract your taxes and expenses from your income, in this case you will end up with just $120 in savings.
THIS is what living at the financial “red line”.
This is where all the accidents happen.
A person who can relate to the situation above is 15 days away from a major financial situation.
The solution:
Log in to your bank account & check your bank statement & your credit card statement for the last 3 months.
Use Microsoft Excel (or Google Sheets) to document your income, taxes & all your expenses for the last 3 months, using the data above.
Subtract the taxes & expenses from your income.
This magic number is your savings.
Most of the times it will be a meager sum (around 5% of your income).
Sometimes, if you are decent with money, it will be around 10% of your income.
There’s also a very good chance that this number will be negative.
If it is, there’s no need to be upset.
The vast majority of financial problems can be solved with a little determination & discipline.
Now, ideally you should be saving around 20-40% of your income.
If that sounds impossible, it just means that you either need to decrease your expenses or increase your income.
Here’s how you can decrease your expenses:
- Cancel subscriptions you aren’t using (gym, grooming kits, Cable TV, landline, Audible etc.)
- Stop eating out too much
- Stop following “consumerism”
Here’s how you can increase your income:
- Make money online by signing up as a freelancer on sites such as freelancer.com, guru.com, elance.com, fiverr.com etc.
- Rent out your basement (if you own your house)
- Offer space in your house for rent on AirBNB (if you own your house)
Financial Sin #2: You are busy making everyone else rich
Are you paying $500 per month for the lease of your brand-new car? You are making your car dealership rich.
Are you spending $300-500 per month eating out? McDonald’s & your favorite restaurant is thanking you for helping secure their future.
Are you smoking a pack of cigarettes a day? Belmont is thanking you for allowing them to have another stellar quarter.
The fact is that you are doing just 1 of these 2 things at the same time:
- Make others rich
- Make yourself rich
You can’t do both.
To put things into perspective, let’s assume that you earn $3000 per month and you spend $500 per month eating out.
This means that ⅙ of your income goes to “eating out”.
In other words, you are working 2 months every single year to make your favorite restaurant rich.
Here’s another example:
Let’s assume that you earn $3000 per month & pay 550 in income taxes.
In this scenario, 18.33% of your income goes to taxes.
This doesn’t sound much until you realize that you are working 66 days every single year, just to support the government!!!
Now, I am not saying you shouldn’t pay your taxes.
Doing so would be unwise.
Instead, I am just helping you bring things into perspective.
The solution:
It is pretty obvious – stop making other people rich at your expense.
We do this all the time without realizing it.
Sometimes, we buy a new car to impress our friends & family.
Sometimes, we just “feel” like splurging & go to a fancy restaurant.
Sometimes, we just “deserve” going to the mall because we have had a tough week.
All these urges keep us in the rat race & force us to work till we are 65 or 70.
Remember the Golden Rule: You can either make yourself rich or you can make others rich – you can’t do both at the same time.
Financial Sin #3: You don’t have any passive income source
This one is huge.
Statistically, only 4% of the world’s population makes money from passive income.
Now, you might be wondering “What exactly is this passive income?”
Simply put, passive income is any income which does not involve your labor.
A property that you buy & rent out in order to make a profit is passive income.
A stock you buy which pays you a monthly or quarterly dividend is passive income.
An online business which helps over 1000 people in some way & for which you charge every month is passive income.
Your job is NOT passive income because you are using your time & labor to make money at it.
Once again, society simply doesn’t teach us to make money through passive income sources.
Ask yourself “When did someone mention that I should buy a decent dividend stock so I could make a chunk in passive income every month?”
The answer for you probably is “Almost never”.
School teaches us to work for money.
School doesn’t teach us to make our money or investments “work” for us.
Until now, passive income has been the domain of the truly wealthy.
The benefits of passive income are many:
- Your don’t have to rely just on your job to survive
- You don’t have to work for passive income
- You can be sick & still make money
Once again, if you don’t have any passive income sources, you need to do something about it.
The solution:
Educate yourself.
In other words, find out which passive income vehicles are available to you & how you can invest in them at a bargain so you can make even more money over time.
At the bottom of this guide, there is a course you can sign up for.
That course helps you understand how to create passive income & become financially independent in 3-5 years.
I would suggest scrolling down & signing up for it now – lest you forget.
Financial Sin #4: You are trading time for money
The honest-to-God truth is that the truly wealthy do not trade time for money.
They have passive income vehicles working for them so they make money in their sleep.
Who trades time for money, you ask?
The middle class & the poor.
By the way, these 2 classes of society also pay the most in taxes, which is yet another reason why they can’t get ahead financially.
But I digress.
If you have a 9-5 job, irrespective of how much you earn through it, you are trading time for money.
The issue with doing so is that:
- You have to put in a lot of effort to make money
- Your income is capped because there are only 24 hours in a day for all of us
- You exhaust yourself mentally & physically
- You pay a lot in taxes
Let’s go through an example.
Let’s assume you make $30 an hour.
For you to make that $30 in that particular hour, you have to be “working” that entire hour.
If you fall sick & aren’t able to work, many times you make $0.
This happens because once again, you are trading time for money.
By the way, even if you are a consultant or even if you are part-time, you are still trading time for money.
The solution:
Stop trading time for money.
If you are employed full-time, find ways to convert your active income (where you trade time for money) into passive income (rental real estate, dividend stocks & online businesses).
The rich have been doing so for centuries with shocking success.
You can do so as well.
Financial Sin #5: You are paying too much in taxes
Generally speaking, if you are trading time for money, you are paying the most in taxes.
This is precisely the reason why surgeons, doctors, investment bankers and celebrities earn over $500,000 a year but still find it very difficult to “get by”.
What they don’t realize is that they are paying 45-55% in income taxes on their earnings.
So while a surgeon might be proud to be making $600,000 per year, in reality he is just making $300,000.
And yes, that is a big chunk of money going to taxes.
The problem is that employees don’t have too many ways to dramatically reduce their taxes.
The most they can do it contribute to a 401K or RRSP.
They can sometimes file jointly with their significant others.
They can also sometimes reduce their taxes by a little bit by filing for Child Benefits.
However, it is ultimately passive income which gets taxed at the absolutely lowest level.
So what do you do?
The solution:
You actively convert your employment income into passive income.
This means that you use a part of your savings to buy dividend-paying stocks.
You use some of your normal income as a downpayment on a duplex, which you can then rent out for a profit.
Remember, you might be paying 30-50% income taxes on your regular income, but you only pay 0-10% taxes on your passive income.
Don’t worry about why this is the case.
It just is.
And yes, this applies to every single country in the world.
Now comes the difficult part – putting all of this into action.
The sad part is that 19 out of 20 people reading this article will not make any changes to their lifestyle.
They will keep working till they are 70 years old, with only a meager sum to support them during retirement.
Only 1 lucky person out of those 20 people will dramatically transform his or her life by putting the strategies in this article into action.
Do you have the courage to do so?
Only you can answer this question.
However, just because you are reading this article, it tells me that you are putting effort into changing your financial situation.
And because you are willing to do so, I am willing to invest in you.
I have a free course which teaches people how to become financially independent in 3-5 years by create passive income sources.
Just scroll down below & sign up for it.
I am sure you will be glad you did.
To your success,
Yasir Khan