I have never talked to anyone who had the exact same financial situation as anyone else.  Every person’s financial situation is different.  Everybody has different wants, dream, abilities, and circumstances.   So, coming up with a financial plan for yourself, where you know all that stuff, is very difficult.  Part of that difficulty is knowing the future, and knowing all the different financial strategies that are available, and how to use them.

Through experience, I have found there are 3 general broad techniques that the average person has to acquire wealth.  1. Paper Investing. (Stocks, Bonds, Mutual Funds etc.) 2. Real Estate investing. (Flipping houses, Rental properties, etc) and 3. Building and owning your own business.

You will notice that working at a JOB is not one of them.  Working at a job is just a way to get cash, to invest in one of the 3 wealth building techniques. These wealth building techniques go against the common wisdom of, get a good education, get a good job with a good pension, and you will be happy.  If that works, why are so many people not better off financially, and happy at their jobs??

I cannot recall anybody, in any income bracket, that didn’t feel they needed to make more money, in order to be able to save.  Why is that?  Very simple.  We live the life style that matches our income.  If you make $500,000.00 a year you don’t drive around in a 10 year old Toyota Corolla, or live in a $1000.00 a month 2 bedroom apartment.  We have been conditioned by society that we need to display our status.  I found that the book, the Millionaire Next Door (William Danko and Thomas Stanley) does an excellent job of showing that truly rich people do not follow this myth.  Truly rich people, and those that intend to be, understand the true meaning of the word ASSET, and spend money on ASSETS and not status symbols.  (Lots of other posts on ASSETS)

We have also been conditioned to “Keep Up With The Jones”.  I have seen this type of behavior in hundreds of situations, even in my own family.  I have found, through experience, that in order for most people to actually get a head financially, they need to review their life style.  I hate to use the term Budget.  It has a bad connotation.  They are restrictive and blown after 2 months.  I prefer the term Cash Flow Plan.  We all have Cash Flow.  It comes in, and it flows out.  A person needs to understand how much is flowing in, and even more importantly, how much is flowing out, AND WHERE THAT OUT FLOW IS GOING!

Most people will tell me they have no money to save.  Not even $25.00 a month.  I get them to track their cashflow for a couple of months.  (Takes about 30 minutes if you have on line banking) The typical response I get is “I can’t believe I spend that much money on …   A big percentage of the time, the expense is a major Canadian Donut shop.  The Cash Flow exercise usually shows where they can save more than $25.00.

Even that small of a change, requires a change in Life Style.  They have to buy 2 less coffees a week.  The key to wealth accumulation is not usually a lack of actual dollars. It is most often, a change in Life Style that is needed to free up those dollars.

How can those few dollars a month help?  Most of us have built a snowman some time in life. We start with a hand sized ball of snow and we begin to roll it.  The further we roll it the bigger it gets.  Same with starting with small dollars.  They need to keep rolling.  We also know that the wetter the snow the faster and bigger the snowball gets. (Dry powder makes lousy snowmen.) This can be applied to money as well.  The wetness of the snow is comparable to how much return we get on the money we invest.  If I invest $100.00 and a year later it is worth $1,000.00, that was pretty wet snow.  If it is only worth $120.00 that was pretty dry snow.

All three of the Wealth techniques (Paper, Real Estate, Business) have varying types of snow, or rates of return.  They all need a different size of snowball to start rolling.  Paper needs the smallest.  You can get things rolling with $25.00 a month.  You will need a bigger snowball to start a business.  These days, using the internet, you can start a business for a couple of hundred dollars to get a domain name, hosting, and a website.  (maybe you even have the skill to do it yourself.)  Real Estate requires the biggest snowball.

In each wealth building technique, you will try and look for the wettest snow. (Biggest return).  But remember, wet snow is slippery!!  You could fall, and flatten your snowball.  This is a serious thing to consider!! Every wealth strategy involves RISK.  The rate of return is proportionately tied to Risk.  That is a Financial Fact.  The bigger the potential return, the bigger the risk to your snowball.  How much Risk are you prepared to handle??  This will govern what wealth building technique, and type of snow, you will use.

Can you be in each technique at the same time?  Of course you can!!  It is one of the main rules of investing.  Diversification.  Never put all of your eggs in one basket. Be that one stock or bond, or one wealth technique.  Start an online business and put the profits into a mutual fund.  When the fund gets big enough use PART of the mutual fund for a down payment on an income property.  This allows you to use all three wealth building techniques at once, but not put all your investments in the same basket.

Diversification is used to even out the ups and downs of wealth building.  Maybe your mutual fund drops, but your internet business is up.  Or your business is down and your income from the property is up.  ALWAYS have some of your investments in boring safe investments!!  But even if it scares you, put SOME in a higher risk.  The percentages are up to you and how old you are.  If you are younger you have time to recover from a bad experience.  If you are older Safety is a main concern.

So, the questions are, does your present Cash Flow allow you to afford your present lifestyle, without using credit??  Are you prepared to have a lifestyle that your Cash Flow will support? Would you change your lifestyle to get the needed Cash Flow, to give you the lifestyle you want?   Realize that the answers to these questions are important.  The next step is, what are you going to DO??