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Everyone wants to know how, at least, everyone claims they want to know how. It’s strange that so few make the effort to learn how to become wealthy, let alone actually do it. If you want to become wealthy, the logical first step is to find out how to make more money.

The secret to making money is to understand that there is no secret to making money. Becoming wealthy is the most obvious thing in the world. In fact, any kid with a piggy bank can tell you how it’s done. Adults seem to need more help.

This is the beginning of a multiple article series on increasing your income. I have no tricks or scams, no multilevel marketing schemes involving makeup, vitamins or expensive kitchen utensils.

My intent is to detail the ways I’ve personally increased my income. I will tell you what I did, how I did it and if I’m still doing it and why or why not. You’ll find that it doesn’t require any special talent. You will need desire and the ability to keep going when life gets a little tough.

Part 1 – Stop Losing Money!

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

This quote is attributed to Warren Buffet. You might know him as one of the richest men in the world. He made his money through investing. Mr. Buffet is also famous his frugality. He lives in a modest but nice home he purchased decades ago for $31,500. He drinks about five Cherry Cokes a day. He drives an American car (a Lincoln and now a Cadillac). At last count he was the third richest man in the world worth about $52,000,000,000. Yes that’s 52 BILLION.

Here we should pause to make some important distinctions. Most people say they want to be rich. Mr. Buffet is wealthy by all accounts, he appears to love what he’s doing, he’s good at it and he’s made a fortune. His level of wealth may not be realistic for everyone but you can certainly picture yourself as wealthy. Picture an amount of money that if it showed up in your bank account tomorrow would change your life. This is probably close to the amount that would make you wealthy.

Let’s examine your perceptions of wealth. If you see a Lexus at a stop light do you assume the owner is wealthy? If you drive by a large house with a four stall garage and a 15 foot front door, do assume that the owner is well off? The dirty secret is that a great majority of these so called rich people don’t really own this stuff. They are living on borrowed money just like the average American.

If your definition of wealth is a nice car and a nice house filled with nice things with nothing in the bank but a handful of IOU’s (load documents) then you might want to reconsider the focus of your life.

Wealth to me is the material ability to pursue my interests and live life the way I want. I have goals like becoming self employed and traveling the world. To me being wealthy would allow me to pursue these goals while at the same time enjoying time with my family.

So how do become wealthy? Really all I can tell you is how I’m attempting to become wealthy. I can share my philosophy and my experiences with you, the hope that it can help you to pursue your goals.

If you want to become wealthy you first have to stop losing money

If you want to become wealthy you first have to stop losing money. Just as if you want to heal a cut, you have to stop the bleeding. And if you are a typical American, you’re bleeding. You have a mortgage, credit cards and perhaps a couple of car payments. You’re paying off student loans, you’ve financed some furniture.

Maybe you’ve even taken out a second mortgage to pay off those credit cards. Unfortunately, you traded one disease for another, and on top of it your opened up more credit cards and you’re right back where you started. Oh and if you think a mortgage is “good debt” don’t worry, we’ll debunk that myth a little later.

You have to absolutely pay off every debt before you can consider yourself wealthy. In fact you have to pay off your debts before you begin the road to wealth. There is no excuse, no rationale for carrying debt. Debt is the antithesis of wealth. It is the wealth killer. The national debt is rotting the United States to the core and personal debt is doing the same to millions of Americans. Debt is a cancer that must be eliminated before the patient can heal. Sorry to be so dramatic, but I think it’s called for in this case.

Saving a few measly dollars every month is like to a fat man jogging. Technically, he’s trying to improve his health, but he’s one heart beat away from a massive heart attack.

But wait, you say, sure I’ve got some debt, but I’m saving a little each month, I’ve got a plan. Saving a few measly dollars every month is like to a fat man jogging. Technically, he’s trying to improve his health, but he’s one heart beat away from a massive heart attack.

If you’re the kind of person that always needs to have a new car, new furniture, a boat, the latest technical gadget, then you should probably stop reading this article. In fact you should probably forget about this site. It’s not for you. You lack the willpower to be wealthy, you’re goal in life is to put on a show; you need someone else’s validation of your life. You are living for someone else. If you’re the one at the stoplight with the new $55,000 truck that’s NOT paid for, you’re probably living your life for someone else. Actually you’re living your life for multiple people and I don’t mean your family. You’re keeping the car dealer, the finance company, the bank and a whole host of other people in business while your nest egg is barely maintaining a pulse on life support.

Just like our overweight jogger, you need help. You need to lose weight before you start jogging. Step one is to lose the fat. Go on a debt diet. I did.

When I was trying to pay my way out of debt I was completely disorganized. I was saving a little bit here, investing a little bit in my 401(k) at work, spending money here and there on stuff I didn’t really need. What I really needed was a plan.

My biggest motivation was losing my first “real” job. Five years for one company and I was dismissed for not “sharing the vision and values” of the company. Most people would consider losing their job a major tragedy. In my case, it was the best thing that ever happened to me.

Losing my job made me realize I was way to dependant on other people for my income. Don’t get me wrong, you will always depend on people (not necessarily an employer) for income, however, when you are in debt, you are trapped, bills need to get paid. You will never be independent when you are in debt to another person. No matter how much money you make, or how many possessions you have, debt is a claim on you and your freedom to be avoided at all costs.

After I got another job, I decided to aggressively attack my remaining debt. I also got a second job and started looking for other income opportunities.

The system that worked for me was to pay off the smallest bills first. You need a sense of accomplishment and a positive feedback loop to keep you going. You need every win you can get to spur you on. Don’t worries about interest rates, now’s not the time to worry about interest rates, you should have thought about that when you opened the account.

In my case I started with the credit card with the smallest balance. I paid them off one by one and closed them as I did so. Don’t let anyone tell you that you want to keep them open for your credit score. When you are getting out of debt the last thing you should care about is your credit score. You don’t need more credit.

I can tell you from experience, living within your means and within a budget is the one of the hardest thing you can do. There are some tricks you can use to get yourself into the frugal mindset. We went without cable television (a good idea anyway, who needs TV when you have the web). We didn’t go out to eat. We rented movies and stayed home on Saturday nights. We still went out with friends but we were careful what we spent. The “we” in this paragraph refers to my wife and me. Without her help and frankly her motivation, I wouldn’t be writing this article.

However, eating at home and reading books will only get you so far. These are the little things that help, but aren’t going to do much on their own. The true secret is to make the large savings automatic. There are a few ways you can do that.

Automobiles are one of the easiest areas to save money.

Automobiles are one of the easiest areas to save money. We limped by with two rather lousy automobiles. We both had our college cars; I had a 1990 Buick Le Sabre (my Delta ’88 died in a Kmart parking lot) and she had an ‘86 Pontiac 6000. I did a lot of maintenance on those cars to keep them running. When her Pontiac aka “the 6” gave out, we bought a car from a friend for $500 dollars. It was an ’88 Buick Le Sabre (but at least it was a two door).

The cars really started showing their age, non essentials like air conditioning are always the first to go. The ’88 Le Sabre’s A/C broke and the windows didn’t roll down very well. It wasn’t so bad once you got onto the Interstate. However, not having a car payment is the best feeling in the world. I’ve never had a car payment and I never will.

Automobiles are a horrible investment. A Vehicle depreciates as soon as you take it off the lot. If you listen closely you can almost hear your car losing value in the driveway. Cars need repairs, insurance and licensing.

And here is the absolute dumbest thing you can do when it comes to automobiles: get a second vehicle to save gas. You probably know someone who has a large vehicle like an Escalade or Pickup Truck that has another smaller vehicle just to drive around town to save on gas. This is plain stupid. There is no way you are making up the cost of licensing, maintenance and insurance and that second vehicle unless gas is ten dollars a gallon. Plus you have to park that vehicle somewhere and if you live where it snows you have to move it every time it snows or you might also need a third stall to house your third car. This is just plain dumb.

After we had the credit cards paid off the next largest debt was my student loans. It’s hard to argue against borrowing money for college. After all it is a key to a good job. However, my wife paid her way through college while I mostly borrowed my way through. She was debt free and I was in the hole. Making those large payments every month was not pleasant. It would have been nice to spend that money on toys but she kept me motivated. Her method involved reminding me how she worked her way through college. As you can imagine, that got irritating real fast, so I had extra motivation to get these loans paid off. We managed to pay them off in a couple of years.

At that point the only debt we had was the mortgage on our house. Paying off your mortgage is a controversial idea, especially to “financial advisors.” When I talked to some people about paying off my mortgage they told me I was crazy. They told me about the supposed tax advantages, the “cheap” money I was giving up that I could put in the stock market and a few other words of wisdom.

We should talk about common sense at this point. You should always question the common thinking. Do you want to end up like the common man? In debt for your whole life, hoping you can put your kids through college and have enough left over to live decently in your older years. I don’t want to be common I want to be wealthy.

The mortgage and real estate industry as a whole have done a fantastic job of marketing the mortgage interest deduction. All you have to do is itemize to take advantage of this terrific option. You just need enough expenses to itemize. Guess what? According to the Tax Foundation, most Americans don’t itemize their taxes. The wealthy do, and people in states with high tax burdens do, but many Americans just can’t itemize. So having that mortgage probably doesn’t help you on your taxes one bit. That’s right; the mortgage deduction is completely useless to the majority of tax payers.

So what if you can itemize. Does it make sense to keep a mortgage?

Let’s talk about the mortgage. Mortgage literally means “death wage.” That’s a great way to think of it. A mortgage is a debt; you are not debt free when you owe money on your house.

There are proponents of keeping a mortgage based on the premise that you can invest the money in something else; the stock market, bonds, CD’s, etc. I’ve seen the proposed by financial planners and I can’t necessarily argue with the numbers. If you have the discipline to stay with such a scheme and NOT spend the money on boats and furniture, you’ll probably do all right. But this article is about my opinion and what I did, so I’ll give you my logic.

I like to keep things simple. My wife’s risk tolerance is rather low. So there was no way she was going to invest her savings in the stock market. Her retirement was in the market of course but she didn’t fell comfortable putting in more money. So our safe alternatives were CD’s or savings accounts. Considering that the rate of return on these financial vehicles is not that great and the interest on these are taxable, it made sense for us to pay off our mortgage and get a guaranteed return higher than what we could get otherwise. I say guaranteed return because when you pay off a fixed rate loan you are guaranteeing that you no longer have to pay that much interest over the life of the loan.

Notice that I have de-emphasized the calculations and emphasized our comfort level. This is important considering that most financial problems are psychological not economic in nature. I’ve heard of (and know) a few young financial advisors that have steered older people into investments that probably weren’t right for their age. They rationalize this based on the returns that the client might receive. There is something very wrong with this. First and foremost, you have to be comfortable with your money decisions. At the end of the day it is your money and not the financial planners. They don’t have a crystal ball. But most of them have sales incentives.

Our decision was based on what made sense to us. I’m constantly amazed that people have money in the stock market but have no idea how the market work. The craze of the late nineties shows this thinking in its rawest form. Everybody is doing it so I have to get in and do it to. In the rush not to miss out on returns, people risk their money on foolish investments without a clue about how the company is going to make money.

When you make the decision on paying off your mortgage (hopefully you are in this position or working your way towards it), remember you have to believe that it is the right thing to do. If you decide after you research the situation and possibly talk with an accountant or tax advisor and you feel that paying off your house is not your best move than I have no problem with that. You need to do what is best for you.

I crave simplicity. I don’t have to worry about making a mortgage payment. I can seriously consider quitting my job and starting my own business. If you have a mortgage you have one more strike against you. You have to make sure you cover this huge expense every month. I don’t have to worry about it.

I believe that becoming debt free is one of the best accomplishments you can achieve in your lifetime. The sense of freedom you have is worth every penny. My advice is to pay off everything. I can’t describe the feeling I had when I made my last mortgage payment. Your values may vary and being debt free might not mean as much to you.

Now that we’ve taken care of your debt, in part 2, I’ll discuss the first method I used to increase my income. Stay tuned…

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