Off course you can! Most people underestimate their ability to grow both their income and their wealth. Most people do not create a written plan to increase their income and wealth. Do you believe you can double your net worth in five years?
The four primary areas of increase where average people build their net worth are:
- Portfolio return
- Real estate (home) appreciation
- Debt reduction/amortization
There are five major inputs or “levers” by which you can control the four sources of increase. These include:
- The growth rate of your income
- Your savings rate
- The rate of return on your investment portfolio
- The rate of appreciation on your home
- The rate at which you pay off debt
You have the most control over your income, your savings rate and your debt reduction rate. You influence your portfolio rate of return with your asset allocation. You have the least influence over the rate of your real estate appreciation. However you influence the return on your investment or equity in real estate through leverage or the size of your mortgage debt and the rate at which you pay it off.
Start now! For the next 30 days, when you get up in the morning and before going to bed at night, ask yourself the question: “How can we increase our income?”
It is extremely important that you believe your plan is achievable. 90% of achieving financial goals is mental, not financial. “Whether you think you can or can’t, you’re right.”(Henry Ford). Belief determines behavior.
For example, you can reject your Financial Plan because it does not fit your belief systems. Or you can change the Financial Plan until it fits your belief systems. Or you can work on changing your belief systems. Helping people change their belief systems is the work of therapists, psychologists, ministers, educators and financial planners. The purpose of all human communication is to change belief systems.
There are many ways to change your belief systems which are beyond the scope of the work of a Financial Advisor. The primary way to influence your belief system is through education.
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