You are finally ready to grow your wealth!
At this point, most likely you have already put in a lot of effort to clear your debts, and you have completed the hardest step in your financial transformation. On average, it takes 6 to 18 months to reach this step, depending on how much debt you have. Although it is not easy, it is definitely worth it.
Close your eyes and imagine how it would feel when you finally reach this step. Now you have $1,000 in cash and absolutely no debts except for your home mortgage. You have pushed so hard, with such intensity that you got the ball rolling and now the momentum is on your side.
Now you have extra cash every month (the amount originally used to return debt) and no financial burden whatsoever, knowing that your hard earned money do not get eroded by consumer debt interests. Again, close your eyes and breathe in. Think about how it feels like when you are debt-free except for your house and have $1,000 in cash.
Are you smiling yet?
The Power of Being In Control
You begin to see the power of being in control of your own finances and make use of your most powerful wealth building tool, your income. Without any debts except for your mortgage, your have finally escaped the muddy pool and dived straight into the crystal clear water, ready to paddle at full speed ahead.
With no bad debts dragging you down, this step should be done relatively quickly and easily.
A fully funded emergency fund actually covers 3 to 6 months of your expenses. The $1,000 you have saved up can be used to cover emergencies, but it most probably won’t be sufficient if you lose your income for any reason.
Consider it as buffer to prevent yourself from going into debt again, an umbrella to prevent you from getting drenched during a downpour. It is a rule of thumb to save up between 3 to 6 months worth of expenses, so the actual amount depends on you. But you must have a minimum of 3 months worth of expenses at your disposal at anytime.
What would it take for you to live 3 to 6 months if you lost your income? It depends, really.
If you are single and debt-free, you can most likely get away with having 3 months worth of expenses saved up and stretch it quite a bit further as long as you reduce your expenses when it is required.
If you are the breadwinner for the family and have dependents, you most likely want to save up about 6 months worth of your family expenses or 6 months worth of your regular income to pull through the rainy days.
A typical fully funded emergency fund can range from $5,000 to $25,000. Do not skip this step because it will rain, and you will need the umbrella. The last thing you want to do at this point is to get back into debt again and lose your momentum, right?
Can I Create Multiple Income Streams to Speed Up the Process?
Of course you can! In fact, it is recommended to create a side income to boost your financial transformation. It is a guaranteed way to increase your net income every month.
Income – Expenses = Net Income
There are 2 variables to increase your net income. Either you increase your income, or you decrease your expenses. However, while there is always a limit to how much you can cut your expenses, there is almost no limit to how much you can increase your income, as long as you know what to do.
This step can be done at any point of your financial transformation, in fact the earlier the better. But we choose to introduce this step after you have cleared away all your debts to make sure you have grasped the good habits of savings from Step 3 – Clear Debt Fast.
Provided you do not splurge away your extra income, you should be able to save up quite a bit and channel it towards wealth building. In fact, the easiest way to make more money is to earn more income online. Learning to make money from the internet doesn’t necessarily need special skill set or talents. Trainings and guides are out there to help you get started, and you just have to make use of it.
Investing in Long Term Active Income
Time to get serious about creating multiple income streams
To supplement your income and build wealth, you can take up extra jobs after your day, but it most likely isn’t sustainable. You won’t have much time left for your loved ones and you will get exhausted pretty quickly.
At this stage, I recommend that you invest a bit of your time everyday to start your own online business and build some long term income streams. The best part is you can get started right now for free and there are even trainings provided to kick start your business. Learn more on how you can make your own profitable website without spending a dime.
The alternative way is to start a traditional brick-and-mortar business, but you need a large initial capital and it is not practical at this stage. We do not have much disposable income and throwing down a large initial capital for business is way too risky.
Why Online Business?
With the rise of e-commerce and ever-growing population of internet users, the entry barrier to start your own online business has lowered considerably such that practically anyone with access to internet can start a business.
Online businesses often require a much smaller start up fund, have a lot of earning potential, and there are a lot of great resources to help you get started no cost at all.
These incomes can be used to supplement your day job and other side incomes that you might have.
You still want to focus on building up your fully funded emergency fund. But since you no longer have debts, starting a business at this step becomes a lot less risky and much more rewarding.
Remember — it takes some time to build up any form of sustainable, long term business. Beware of the hype surrounding online entrepreneurs.
There are simply no online businesses that can make you rich overnight, nor there is any “push-a-button-and-get-rich” online systems. Online businesses are the same as any other business — it takes time and effort to see results.
But once you have acquired the skills, it becomes much easier to maintain and generate consistent income.
To Do List
- Save towards fully funded emergency fund (3 to 6 months of expenses)
- Generate an additional income stream
This article is one of 6-step series “Achieve financial freedom in 5 years time“.