Blog post written by current Master in Finance student Javier Visedo (Spanish/American  citizen). Javier graduated from the Bachelor of Chemistry from Universidad Autónoma de Madrid with a very top grade. He also did one year Exchange at the University of Colorado, USA. Javier is a well-rounded student with a strong passion for finance, cheministry, physics and psychology etc. He won a mathematics contest at university and obtained various academic awards during his years at university. Javier´s hobbies include playing the piano, martial arts, tennis, archery, dancing, organizing events, and social psychology. Javier also enjoys writing and you can read more articles on his personal blog HERE.

In this article, Javier shares with us his personal approach to wealth and how it can be applied in our daily life.

are you going to be rich 

Have you heard about all those people who, in spite of making a lot, are up to their neck in debt? Have you ever thought to yourself, “If I only had more money all my troubles would go away”?

90% of people say that they have problems with money, and believe that having more money would solve their issues. What many do not realize, is that the problem is not the money itself, the problem is what they do with it when they have it! A clear example is winning the lottery: a lucky man/woman suddenly wins a million dollars, what do they do? They buy a great house with a big mortgage; they also get an awesome new car, go on trips and buy all sorts of widgets. A year later they run out of the lottery money, are absolutely broke and on top of that they have huge debts to pay. What happened?

A similar thing happens to at least 70% of the people when they get a raise in their salary: they start spending even more than their raise, ending up in even more trouble than before!

A very important thing in personal finance is to have your income be greater than your expenses, more money coming in than going out. That way you will have an increasing amount of money that you can save for a rainy day…or use more productively! (I will explain that later). Does that mean one cannot spend money on nice things or go on trips in order to reduce expenses? Not necessarily, in order to have that margin you can do two things: reduce your expenses (typical advice) or increase your earnings!

Reducing your expenses is easier than it sounds, every day we spend money on little things that we do not really need. While it seems like little money, if you add up all those cafes, nice lunches out, even what of us spend when we go out…if you add it up and see how much you spend in a month, or in a year, it is NOT a small amount. Noticing those small daily expenses (and also the not so small ones!) is very important if you want to be able to manage your personal finance, instead of being managed by it.

Now how can you increase your earnings? A raise, a better job position…this is the most common thought but, what about the extra money you have been leaving aside? You can put that money to work! Invest it and then you can have an extra source of income outside of your job! Let’s say that each month you are putting aside 10% of your income for investing (let’s say it’s $3000 a month, and you take out 300). After a year doing this you would have $3600 available, more than a month’s pay! You could invest all of that and get some nice extra money!

A final issue I want to talk about is the measure of wealth, how to decide if someone is wealthy or rich. While one usually thinks of this in terms of an amount of money, which may be 100,000 dollars, a million dollars, 10 million dollars…wealth to me is a matter of time. I would define it as how much time can you live your actual life without having to work. If you quit your job right now or got fired, how long would you last without having to make changes in your expenses, having to leave your hobbies and not be able to go out and do what you normally do? In many cases the answer is something close to 3 months. Independently of what they make, be it one thousand or ten thousand dollars a month, about 80% of people are only 3 months away from being completely broke!

So now I ask you, after you finish your studies in IE and get the great job that you want or start that awesome business where you will make a lot of money…will you be wealthy?