Have you ever seen those little merry-go-rounds that many playgrounds have? In our modern-day litigious society, they aren’t as common as they used to be, but if you have ever been fortunate enough to ride on one you know how much fun they are. Often, a group of kids will jump on while one or two more will stay on the ground and push the others around and around. With each little push, the merry-go-round goes faster and faster, and the kids laugh harder and harder.
Our lives today are full of cycles. Many people find themselves in a sort of vicious cycle of earning money only to see it get quickly spent. But there is a better way – the Wealth Wheel.
The Wealth Wheel is a series of steps that – as you take them over and over again – you build up positive financial momentum and start to take control of your life. Like kids on a merry-go-round, you will start to enjoy the freedom that comes with financial independence and each little push will only give you more momentum.
The book Forever Cash goes into more detail about the Wealth Wheel method but let’s have a look at the basic process in this post.
Reduce your monthly living expenses – This is the first and most important part of this process. After all, what would the point of increasing your monthly income be if you were only going to watch it go out the window? Whether it is by using comparable services and products, cutting unnecessary luxuries, or lowering your consumption of utilities, reducing your monthly expenses is the first step towards financial freedom. The money you save should be put aside for later investment.
Save some of your income – Even if you aren’t exactly rolling in the money right now, chances are that you can probably stand to set aside 5% to 10% of your monthly income. Put this (along with the money saved by reducing your expenses) aside and don’t touch it.
Earn some extra seed money – As we covered in a previous blog post, try to find some way to earn a few extra bucks outside of your job. Whether it comes from working part time at a restaurant or offering your service on a website like Odesk.com or Elance.com, save most of what you earn (at least 90%) and put it with the rest of your savings.
Make a few investments to increase your seed money – You will want to make a few short term investments to increase the amount of your seed money. Perhaps you can flip a few pieces of real estate, do some day trading, or buy and sell at garage sales and flea markets. Either way, focus on increasing the amount of money in your special savings account in as little time as possible.
Invest in a cash-producing asset – Now comes the fun part…investing in your first cash-producing asset. Take all of the money that you have earned and purchase an asset – perhaps a small business, a rental home, or a dividend-paying stock. Then, sit back as the money starts coming in each month.
Save most of the money produced by that asset – Try to show self-control and save most of the money as it comes in. Why? You will want to use that money to buy a second asset, and then a third, and then a fourth.
Repeat – After a few cycles, you will want to invest in bigger and better assets, ones that will not only take care of your expenses now but also those of your dream life. This can be done in just three to five years.
Like a merry-go-round that goes faster and faster with each turn, the Wealth Wheel method can build up a positive momentum that can help you to reach your financial goals in record time.