Living On Half

Master wealth builders understand a secret: You have to keep your spending down while your income increases. You must teach yourself to feel the truth: that every time you buy a depreciating asset, you become poorer. Remind yourself that most of the junk you buy becomes unused after a few months and does not provide you with that much value anyway.

To begin with, one must avoid all forms of debt much as you would the plague. Secondly, one must live on half his income. This meant that what you made in your job at the end of each month must be used to pay for only the basic necessities and the remaining half would be saved and invested.

If you adhere to this basic rule of avoiding debt and living on half your income, one couldn't help but becoming wealthy over time. "But what should I invest the remaining 50% of my money in?" It doesn't matter what you invested in since you'd be using only a certain part of your discretionary income. If you bombed out on one investment, you'd eventually come back on another one.

Wealth is not acquired through addition. It is acquired through multiplication. Very few fortunes have been made by adding up paychecks and overtime. Two factors are most important in achieving wealth:

- The number of years that an individual has been consistently saving and investing.

- The proportion of funds, on average, allocated to higher return investments such as stocks.

Simply stated, if your goal is to accumulate a significant amount of wealth during your lifetime, you must first save something and then exercise control over one of two factors: your long-term rate of return or the time horizon over which you compound your wealth.