30 Sep Deprivation versus Expansion for becoming wealthy
Today I want to talk about two very opposite ways to become wealthy: 1) Deprivation, and 2) Expansion.
Put simply, “deprivation” means slashing your expenses with no mercy. No more going out to eat, no more going out for coffee, and forget about ever taking a vacation. You should cut up your credit cards and live the life of a pauper.
On the other hand, “expansion” is less drastic and has you focus your energies in the other direction. You put monthly expenses into a sort of holding pattern (don’t take on new regular expenses) and focus on increasing the amount of money that you have to work with. Which do I prefer?
Deprivation is not the key. If any financial advice is not enjoyable, it is perceived as difficult. If it is difficult, then people won’t keep it up long-term, and they will eventually fail. It’s like going on a diet to lose weight long-term. Long-term diets just don’t work. What does work is doing a little bit of the diet, cutting out the worst foods most of the time and the bad foods (but not as bad as the worst) many times (equals playing defense by reducing the bad elements) but counteract that with physical activity to burn more calories (equals playing offense by actively burning more calories). What’s required is not a diet, but a lifestyle change.
That’s why I advocate expansion- creating seed money and cash-producing assets that make your operating budget larger. For me, the best kind of asset is one that makes you a profit and, at the same time, gives you regular monthly (or quarterly or yearly) cash flow—forever. That is my definition of a Forever Cash Asset. It’s an asset that goes up in value over time (or at least maintains its value) and that gives you cash flow, starting the moment you buy or create it. Examples of that are, cash-flow positive rental real estate, land leases where you lease the land, royalties from books you write, licenses you give out on product inventions, membership fees collected from an online membership website business you create, monthly overrides you receive on the consumption habits of your network marketing down line, and things like that.
Deprivation might work for some people – but it won’t for most of us (it didn’t work for me). Expansion is much more realistic and focuses on long-term improvements instead of short term sacrifices.
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