255 | The Two-Step Wealth Formula

Building wealth is painfully simple. But many lawyers are not making the right moves to get there.

If you want to build wealth, there are only two things you need to do.

In this episode, let’s talk about exactly what they are so you can get started on your wealth journey today.

• • the two steps to build wealth
  • exactly what you need to do to achieve them

n/a

You’re listening to Personal Finance for Lawyers. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey, friend. Welcome back.

Today we are talking about how to build wealth. And there are truly only two things you need to do to build wealth.

If you can do these things, which they are very simple, if you can do these things, I guarantee you that you will be able to build wealth.

The first thing is you need to stop doing the things that are making you broke or keeping you stuck and the second thing is you need to start doing the things that will build wealth. That’s it.

Now, within each of those, there are some other things that you need to be doing, right? What are those things that make you broke or keep you stuck? What are those things that build wealth? So we’re going to talk about those. But at the core of it, there’s only two things you need to do. You need to stop doing the things that make you broke or keep you stuck, and you need to start doing the things that build wealth.

So what are some of those things that make you broke or keep you stuck?

Hands down, the top one in my book is believing there’s nothing you can do about your financial situation. So many lawyers believe it just is what it is, this is how it goes, this is how my money goes, there’s nothing I can do about it. And that’s just not true. That’s something that you have taken on that you’ve decided to believe. You think that money is just happening to you, you can’t get out of debt, you can’t save, but all of that is within your control.

And so when you believe there’s nothing you can do about your financial situation, you won’t even try to do anything to fix it. And that is going to keep you stuck right where you are. So stop believing there’s nothing you can do about your financial situation.

The next one is you’re ignoring your finances. So many people just put their head in the sand, they don’t want to think about their money. They go about spending whatever, but not actually looking at it. A lot of people just avoid their finances altogether. And you’re never gonna build wealth if you don’t look at your finances, if you’re ignoring what’s happening with your money, if you are just spending and not thinking about it, not having any sort of plan for how you’re going to do it, how you’re going to use your money, then of course you’re not going to be able to build wealth.

So you got to stop ignoring your finances.

The next thing is using debt with no plan. Now I actually put everything on my credit card throughout the month and then we pay it off at the end of the month. But what I’m referring to here is when you are buying stuff that you don’t have the money for and you don’t know how you’re gonna pay it off, but you just justify it because I really want this thing. I really want to take this trip. I really want to buy these clothes.

And we’ve got all of these different payment plans like the Affirm, the Klarna where it’s like, oh, well, it’s only this much, right? The payment is only $200. Surely I can do that, but going back to the second one, you’re ignoring your finances, so you don’t know what’s happening anyway.

But even if that $200 would fit, what happens often is people do those payment plans more and more and those payments start adding up. I have seen where people have thousands of dollars going out because of all these different payments that they’ve got, because of the credit card payments, because of the Afterpay and the Klarna. All of that kind of stuff. Not even thinking about your student loans or your mortgage or your car payment.

Like I’m thinking specifically credit cards, personal loans, these Afterpay situations, all of that.

So when you are using debt like that with no plan, it’s going to keep you stuck or really it’s going to be taking you backward because if you’ve got so much going out in debt payments, and especially if you’ve got more going out in debt payments than you have coming in, it’s going to be impossible to build wealth.

The next is spending more than you make. If you want to build wealth, you have to stop spending more than you make. Because you need some discretionary income, some amount of money between your income and your expenses that you can devote to things that build your wealth. So if you’re spending more than you make, then you don’t have that money available to build wealth with.

I say often wealth is built in the gap between your income and expenses. So if there is no gap there, then you’re not going to be able to build wealth. If you are spending right at the amount that you make, or you’re spending more than you make, then there is no money that you can use to build wealth with.

So if you want to build wealth, you’ve got to stop spending more than you make.

The next one is giving money to everybody else and settling for whatever scraps are left. Now with this one, I am thinking about not just giving money to people in your life.I’m thinking about all of the trips to the store, all of the stuff that you buy online, going to this restaurant, doing this thing, like you’re giving money out to all these different businesses around you and you’re just like, oh, I hope I have something left to save at the end of the month. I hope I have something left to make an extra debt payment.

And when you do that, inevitably you’re going to spend all of the money, maybe even more, and you’re not going to have anything left for yourself.

So you’ve got to stop taking care of everybody else and hoping that there’s something left for yourself at the end if you want to build wealth.

The final thing that I have here and this is not necessarily a comprehensive list, these are the things that came to mind for me. But the final thing that you want to stop doing that is keeping you stuck is thinking about your money as a way to pay bills and buy stuff and that’s it. You’re getting this income, whatever your salary, whatever pay you’re getting, and it’s like, okay, I gotta pay these bills and now I can go and spend this, I can splurge on that, I can take this trip, I can do this, I can do that. All of the money is going out to bills and to stuff, and again, you don’t have any left for yourself.

It goes back to the thing that I said a minute ago about giving money to everyone else, but it’s because that is the primary view that you have of money. If I believe that money is for paying bills and buying stuff, when I get money, I’m gonna pay bills and I’m gonna buy stuff.

I’m not thinking about any other use for that money. So if you want to build wealth, you got to stop thinking about your money as a way to pay bills and buy stuff.

So now let’s talk about the things you want to start doing if you want to build wealth.

The first is believing that wealth is available to you. It’s something that I say at the end of every podcast episode. Like I want you to take these things in and understand that you can do them too. I am no different from you, anyone else who is managing their money well, who’s building wealth, they are no different from you.

And as I say all the time, if you can practice law, if you made it through law school, even if you decided not to practice, if you could do that, you can manage your money, you can build wealth because it is really simple. But you have to believe that because if you don’t believe that it’s even available to you, you’re not going to take the steps that you need to take to get there.

If you don’t believe that this thing is possible, then you’re not going to attempt it. So you’ve got to believe that wealth is available to you, that you can build wealth.

The next thing you need to start doing is pay attention to your finances. What we focus on grows. So if I’m paying attention to my finances, I’m going to be able to improve my finances, to grow my finances because sometimes just that awareness is all we need.

Sometimes we don’t realize what’s happening with our finances because we’re just not paying attention. And so just being aware of what you’re spending on, of where your money is going will cause you to do some different things to make some different decisions so that you end up in a better place financially.

So you’ve got to pay attention to your finances. You need to know what’s going on because as you pay attention to it, as you see what’s going on, you’re going to make some better decisions that lead to building wealth.

The next thing is using debt strategically. Now, as I said earlier, I used my credit card for everything. I actually started doing that back in college when I was applying to law schools and I was going to visit and I was using my debit card at these hotels and they were putting that little hold on there and it was like my actual money was tied up and I didn’t like that.

And so I started using my credit card for everything. And it also has been helpful when there have been fraud situations and things like that where I can just get a new credit card. I dispute the charges and I’m not worried about having to get my actual money back. So that’s why my husband and I like to use our credit card for everything throughout the month.

But the thing is we’re doing that strategically. We are not paying for things that we can’t actually afford. We are spending the money that we already have. But that’s not to say that there are not times that we have used debt to pay for things where we didn’t have the money for it.

In those instances, though, it’s going to be either something that we can get a return on investment for. So for example, I have used debt to invest in myself with learning about business, learning about entrepreneurship. I have used debt to improve the skills of my actual coaching in my business, all right, to learn how to coach people better to help them get the results that they want faster.

We have also used debt and situations where we are able to get a low interest rate on the debt and didn’t want to take money out of savings. So the specific example that I have in mind is we had to replace our HVAC a few years ago. We were able to get a really low interest rate on that debt to pay for the system and so we kept that loan so that we didn’t pull all of that money out of savings.

However, that was only an introductory interest rate and so once that introductory rate was up, then we went ahead and pulled the money out of savings and paid off that loan.

But I say all that to say you want to use debt in a strategic manner. So we’re not using it just to buy stuff that we want to be able to go on vacation that we don’t actually have the money for things like that. You want to use the debt in a way that allows you to get a return on investment.

So for example, people who are into real estate, they might take out mortgages to buy that real estate. People might invest in programs that allow them to learn a skill that they need for their practice that’s going to allow them to practice better and ultimately to make more money.

The main point that I’m making is we’re using the debt in a strategic manner. So the debt is not an extension of your income. I don’t have enough money and I still want to buy stuff and so I’m going to put it on debt. That debt is a tool that you’re using to be able to get some sort of return on that investment. And that is a smart way to use debt that allows you to build wealth.

So you want to start using debt strategically to allow you to make investments that you want to make, and not just buy stuff that you don’t have the money for.

The next thing that you want to start doing is spending less than you make, and better yet, make more money. When you spend less than you make, you increase that gap between your income and your expenses that we were talking about, and that allows you to have money available for the things that you want to do, for the investments that you want to make, for building wealth.

If you make more money, same thing, you’re increasing that gap between your income and expenses, and you’re able to direct that money toward building wealth.

Increasing the gap between your income and expenses is the key to building wealth and that comes from spending less than you make, making more, or both.

The next thing you want to start doing is setting aside the money for yourself and your goals first. So when your check comes in, you are putting aside the money that you want to save, you’re putting aside money that you’re going to pay down debt with. You’re putting aside money that you’re going to use to invest. You don’t want to allow all of that money to slip through your fingers because you’re just spending and not paying attention.

By setting it aside first, you’re able to make sure that you have that money for yourself that you are saving something. You are able to make extra debt payments. You are able to invest because you took that off top. So start setting aside the money for yourself and your goals before all of your spending. Flip the way that you typically handle your money. We’re not spending and saving whatever’s left. We’re saving first and then spending whatever’s left.

The final thing that I have on my list of things to start doing is start viewing your money as a way to buy assets that make you more money. Again, we don’t want to only look at money as a way to pay bills and buy stuff. We are using that money to make more money. We want to put that money to work for us so that ultimately you are not the only person making money for you. You’ve got your money working for you as well. And then that money starts earning more money. And it’s this cycle that just keeps continuing.

So stop viewing your money as paying bills and buying stuff. Start viewing your money as a way to make more money. Use that money that we just talked about with increasing that gap between your income and expenses. Use that to buy assets that will make you more money.

And if you do those things, you will build wealth.

Alright, so that is it for this week’s episode. Please take a second subscribe to the show, leave a review. Both of those things help the show get seen by more people, and it helps to make sure that we are spreading this information to the lawyers who need it.

I want all lawyers to be able to manage their money better to achieve freedom. And I can’t do that without your help. So please subscribe to the show, leave a review. I greatly appreciate your support.

As we close out, friend, I pray that you take the information you learn here, apply it in your life, and open up to the realization that wealth is available to you.

As you do that consistently week after week, you’ll continue to take steps to take back control of your time, build wealth, and live the life of freedom and choice you deserve.

Talk to you later.