What does it take to become wealthy?
Being rich does not necessarily make someone wealthy. An individual that makes $500,000 of realized income with large spending habits is not going to have much leftover for the future. This is the type of individual that pays the highest amount of taxes, spends large amounts of money to keep a luxury lifestyle, yet lives paycheck to paycheck – expensive cars, big house and nights out on the town a few times a week. These commodities, though nice, do not contribute to one’s wealth.
A wealthy individual will ensure that they allocate their time and resources to saving money, rather than spending it. This entails paying down debt, reducing overall expenses and finding deals on necessities. Financially independent individuals and families usually live below their means to secure themselves for all of life’s trials and tribulations.
Wealthy individuals tend to pay attention to market opportunities to invest and make extra money, whether this is watching equity markets or keeping a close eye on opportunities to invest in a new income property. Wealthy individuals are savvy in their methods to get their savings creating more wealth for them.
The wealthy individual will find the best ways to reduce his tax bill by taking all possible options to lower their realized income. This can be done in many ways:
- Maximize contributions an employer-sponsored retirement plan [i.e. 401(K), 403(b)] or open a tax deductible IRA (Individual Retirement Account).
- Contribute to a health savings account.
- Take advantage of all write-offs and tax credits they may qualify for (various student loan credits, write off interest payments, new home buyer, invest in real estate, if personal vehicle is used for work it can be written off etc.).
- Donate to tax-deductible charities.
For the self-employed individual or someone that runs a side business:
- Use a home office? Write off 1/5th of your living expenses.
- Write off any expenses that are pertinent to running your business.