Turbocharge your finances

At the centre of all things finance are income and expenses. Having more income than expenses has a positive impact on your personal balance sheet, the opposite where expenses exceed your income will lead to a reduction in assets and/or create more debt.

This gives you two ways to control your finances. You’re presented with two doors to choose from at any given time, there are no other doors, windows, or exits. Your choices are increasing income or decreasing expenses. You can hit the turbocharger button to achieve faster, more effective results by doing both at the same time and this is exactly what you want to be doing.

How to turbocharge your finances

The first door you can open, decreasing expenses, will produce some quick results. There are usually some expenses, whether it’s entertainment, subscriptions, insurance, utilities, phones, etc. that can be reduced instantly. By going through all of your costs, you not only find ways to keep money in your pocket, but more importantly you wrestle back control over your finances. Depending on your situation the wins can come quickly but be prepared to progressively put in more work and effort to continue to get the results.

The ‘stranded island’ analogy

It’s a bit like being stranded on an island, at first you’ll be able to feast on the low hanging fruit (for example reducing any car, house, contents and life insurance costs, not purchasing daily coffee and lunch, cancelling the foxtel subscription, reviewing the mobile phone contract, changing gas and electricity suppliers for lower rates).

As each piece of the low hanging fruit is eaten the next piece is a little higher, a little more difficult to reach. Eventually the returns from driving your costs lower will produce fewer benefits, if you get to the point where it’s two minute noodles and tinned soup every night for dinner while sitting on milk crates (because who needs contents insurance for milk crates?) you’ve definitely gone further than is necessary.

The secret to wealth mastery

What you should understand is that controlling costs is vital, you must do it, but the upside of the benefit is limited and costs can and should only be reduced so far. Once they are under control (they are less than your income), keep them under control, plan a regular review but then focus your attention on the other door, increasing income.

Increasing income is the little secret to becoming financially free. Financial dreams are not an expense problem if you have the income to achieve them. What isn’t necessarily the mindset or accepted reality is that there are no boundaries to growing your income.

Your potential income is essentially unlimited, as is the ability to structure it to suit your lifestyle. I’m sure if you asked Bill Gates, Warren Buffett, Oprah Winfrey if the potential of decreasing expenses is more effective than increasing income, the answer would be to put your energy into creating more income.

Options to increase your earnings

The options to increase your income are just as wide in choice, as they are in financial impact. At the ‘simple’ end of the scale, you could increase your income from your current job through a salary increase or changing employers by providing more value. You could take on a second job, start consulting, start an online side-time business, invest in the share market or properties for passive income. The choices are plentiful.

By understanding that income and expenses are the base factors to everything finance you’ll recognise with clarity that you have only these two doors to manage and control your finances. You don’t have any more options or methods, you have these two to learn and master so start working on them now.