offense and defense

Do you have strategies in how you build wealth?

Why are so few people affluent? Even most households with six-figure annual incomes are not wealthy. To be wealthy, in our definition, is to have more than double the expected net worth given your age and income.

If you want to find out what’s your expected net worth, take a look at this article and see where you stand financially. It takes planning, deliberate actions and discipline to become wealthy, and ultimately financially independent.

In Thomas J. Stanley’s famous book, The Millionaire Next Door, he introduced the concept of offense and defense in personal finances. Today, we examine how it works and how we can use it to our advantage.

Advance and Protect

 

Have you played any war strategy games before? If you want to expand your kingdom, you make small advancements and build outposts, and you protect them. Little by little, you see your territories develop and before you know it, you have conquered the whole map.

How does this relate to our personal finance? Let’s say your life goal is the map. If you want to become financially independent, you have to make small steps and create small streams of incomes.

You make advancements in your ability to generate more income year after year. You start an online business on the side. You make calculated investments. You ask for a pay raise. In other words, you play better and better offense.

In strategy games, if you build advanced outposts without strengthening and protecting them, you soon lose it to your enemies. Likewise, if you have extra income but do not save and invest them, you lose them. This is why so many high income earners are not wealthy. They play great offense, but they are lousy defenders.

Playing a Better Offense in Your Personal Finance

 

If you are an employee just like millions other, there is a good chance that your offense capability is capped. There is always a limit to how much your boss can pay you, but you can always negotiate your pay, especially during your performance review.

A survey by Salary.com revealed that only 37% of respondents always negotiate their salaries, while 18% never do. An astonishing 44% of respondents claimed that they have never brought up the subject even during performance review.

The primary reason of not negotiating is out of fear. Studies show that of those people who negotiated, they were able to increase their salary by over 7%. It may not sound like a lot for a single year, but if you compound the difference year after year, the difference can be tremendous in the long run.

Negotiating your salary can be scary, but what’s even scarier is not negotiating at all.

If you want to escape the rat race and become financially free eventually, you’ll have to build something of your own at some point, such as dedicating an hour after work each day to build your own online business. You will thank yourself few years down the road for taking the first step and be a master of your own financial journey.

Become a Better Defender of Personal Wealth

 

It is great to play good offense in the game of income generation, but to be wealthy, you have to also play good defense. That is, being frugal when it comes to spending for consumer goods and services.

Being frugal doesn’t mean skimping on quality and settle for less. It is the act of not being wasteful, and make sufficient considerations before spending unnecessarily. A good defender practice frugality and understands that excessive spending on material possessions doesn’t bring long term satisfaction.

A high income producer does not automatically translates into a high level of net worth. Something else must be present. If you are single, examine your expenditure categories and identify unnecessary spending. If you are married, you should play good defense as a household.

Talk to your spouse if he/she is a big spender, and budget your household expenditures together. Few people can sustain imprudent spending habits and simultaneously build wealth.

The Bottom Line

 

While budgets and penny-pinching are all well and good, if you are serious in becoming wealthy and financially free, there is no substitute for a bit of entrepreneurial grit.

Take the first steps in shaping your financial future and maintaining it can be a great deal of satisfaction. Keep in mind that all self-made millionaires start small, but they play both quality offense and quality defense.