Get rich quick schemes are everywhere. Some are complete scams, some do offer a positive return. But, they are all a distraction.

Let’s say you found a scheme that you could put in $5k and potentially double it. How much impact is that going to really have on your wealth? How much good have you really done?

At the end of this investment you have $10k. Congratulations, having $10k is better than not having $10k. However, you haven’t really made any real progress toward financial prosperity. Retiring with a $10k nest egg is not going to be very fun.

Instead of focusing on these kinds of schemes, I want you to focus on your real wealth-building tool: your income.

How much income would it take to turn that same $5k into $10k? Well, if you give yourself a year to do it, a little over $400 per month. And, you’ve done it without risking a penny. I know, it’s not very exciting. But, when you are first starting out, your most powerful wealth-building tool is your income.

Real wealth is created by systematically and consistently spending less than you make. Then, investing the difference.

Protect Discretionary Income

One of my favorite tools for personal finance is the Undetailed Budget. There are only four numbers to master.

Undetailed Budget: Income – Recurring Expenses = Personal Spending + Saving

Let’s break this down a little bit. Take a look at the left side of the equation: Income minus Recurring Expenses. If you subtract your Recurring Expenses from your Income, the amount that is left is how much money you have immediate control over every month. Another word for that is Discretionary Income.

The more Discretionary Income you have, the more you can decide every month to either spend or save.

Discretionary Income is as Valuable as Big Investments

One problem that so many households get into is that their Income is gobbled up by Recurring Expenses before they even get their hands on it. As I discussed in an earlier post, it is possible to spend as much as 50% of your gross income on housing and transportation payments.

The median household income in the US is about $60k. It is feasible that a family with that income could have debt payments of up to $30k. Take-home pay on $60k is about $48k. So, this family would have about $18k of Disposable Income, or $1,500 per month.

On the other hand, if that same family followed my rules to add FIRE to your finances and only borrowed for housing and transportation, and only had payments up to 25% of their gross income, then those payments would only be $15k per year. That would leave a disposable income of $33k per year, or around $2,750 per month.

That is an extra $1,250 per month of disposable income. Which, is comparable to the income produced by just under $190,000 of invested assets.

Yes, wealth creates wealth. But, you can create the same positive impact on your net worth by creating positive cash flow.

Discretionary Income Math

How did I get to that number?

A fairly reasonable estimate of long-term growth of invested assets is about 8%.

$1,250 per month is equivalent to $15,000 per year.

$15,000 per year is 8% of $187,500.

Therefore, by reducing your Recurring Expenses from the maximum allowed by your lenders to my rules of thumb, you increase your Discretionary Income. For the median household in the US, that increase in Discretionary Income is equivalent to the wealth-building power of having nearly $200,000.

And, if you take that $15k per year and systematically invest it into a well-diversified portfolio, it will continue to grow. After about 9 years of 8% growth, you will have about $200k invested.

That $200k invested will also be kicking off about $15k per year of its own growth. So, at that point you’re adding $30k to your wealth per year, and it will only cost you $15k per year to do it. Awesome!

Then, it’ll only take about 6 years for everything to double again. At that point you’ll have $400k invested, kicking off $30k of income on its own. Add in your own $15k, and you’re adding $45k to your wealth every single year!

It’s only 4 more years until your $400k turns into $600k and your passive income jumps from $30k to $45k. Then, 3 more years to get that $600k to $800k and boost that passive income to $60k.

That’s a total of 21 years and now your investments are creating the income you started with.

Protect Your Discretionary Income

Discretionary income is produced by only two sources: Income and Recurring Expenses.


To maximize your Discretionary Income you need to be maximizing your Income. The best part about using the Undetailed Budget is that by separating your finances into just four numbers, it is easy to see how changing one part while holding the others steady can dramatically improve your situation.

If you can boost your Income by just a few hundred dollars per month, but not change your Recurring Expenses, then all of that added income goes directly to your Discretionary Income, and you can use it to boost your Net Worth.

Check out my post for Finding Room for Savings in your Budget for income ideas in the short-, medium-, and long-term.

Recurring Expenses

To protect your Discretionary Income, you need to keep your Recurring Expenses down. The great news is that Recurring Expenses are primarily driven by two large and infrequent choices: Housing and Transportation.

If you decide that you will only use debt for Housing, Transportation, and Education (see this post for my debt guidelines), then you will only be changing your Recurring Expenses once every few years.

If your Recurring Expenses are out of control now, then you may need to make a one-time, drastic change to your Housing or Transportation. I know it is painful to downsize your home or sell a fancy car. But, if that is what is standing between you and financial success, then it is time to buckle down and make the sacrifice.

Cash Flow Builds Wealth

Let’s look at an example to help illustrate the point. How much wealth would someone have to have for it to create the same amount as the average American spends on a new car?

Well, the average new car payment in the US is about $550 per month. And, having a new car requires more expensive insurance. If the insurance increase is about $100 per month, then that new car costs you about $650 per month.

$650 per month is approximately equivalent to the new wealth produced by $100,000 of investments.

Therefore, not having that new car in your driveway has the same positive impact on your net worth as having $100,000 in investments.

Let me say that another way.

Positive cash flow can have the same impact on wealth-building as hundreds of thousands of invested dollars.

Next Steps: Make Your Own Calculation

For all of your recurring expenses, you can calculate exactly what it would take for investments to produce that income.

Monthly expense x 12 = Annual Expense

Annual Expense / 8% = Investment Equivalent of that Debt

Now, you can do the math yourself. Let’s say you have a fancy cable package with all the movie and sports channels. That deal is currently $197 per month at DIRECTV. If we round that up to $200, here is the math:

$200/month = $2,400 per year.

$2,400 / 0.08 = Investment equivalent of fancy cable: $30,000.

That cable package is equivalent to the wealth building power of $30,000.

Go ahead, take a look at your own recurring expenses and calculate the approximate equivalent wealth. I promise, you’ll be surprised.

Final Thoughts

Positive cash flow is the most important wealth building tool you have access to.

When you are first starting out, it is super tempting to look for a shortcut. Get rich quick schemes are everywhere.

Unfortunately, those schemes are a distraction. They pull focus and energy away from your most powerful wealth building tool: your income.

Maximize your Income. Limit your Recurring Expenses to 25% of your Gross Income. If you do that, I promise you will start building Wealth immediately.

I hope this has been helpful! I welcome your comments with your thoughts and questions. And, don’t forget to subscribe to the newsletter to get notified whenever a new article is posted.

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