All of us want to have a prosperous life. A life where all our needs and the needs of our loved ones are met, and a life where we can pursue our purpose and dreams without worrying about the basics needs of every day. Pursuing this kind of life starts with simple steps where you build, accumulate, and grow your wealth.

There are already many books, videos, and articles that show you how to build wealth. Here I will give my own take on this subject matter, which I believe is condensed into three steps:

1. Create your surplus
2. Increase your surplus
3. Optimize your lifestyle

While these steps are implemented in order, it does not stop at the last step. Instead it loops back to the first step, forming a virtuous cycle.

Create your surplus

This is the first step that you need to take in order to build wealth. At the end of the month or year, your income must be greater than your expenses in order to create surplus.

Income – Expenses > 0

What is surplus? Based on the dictionary definition:

A surplus is an amount of something left over when requirements have been met; an excess of production or supply over demand.

In terms of wealth, surplus is the amount of money left after all of our expenses and financial obligations have been met. If you have debt, then the above formula changes to take into account the amount that you need to pay for your debt:

Income – Expenses – Debt Payments > 0

As you can see, if you have debt it is going to be more difficult to generate surplus. Therefore, as a general rule you will need to get out of debt before you can build wealth. However, this may not be the best course of action for certain kinds of debt, for example, your mortgage which is not practical to pay everything first.  On the other hand, bad debt like credit card interest and consumer loan debt (for gadgets, furniture, etc) need to be paid out first before you can have a surplus, i.e. get the Debt Payments value down to zero:

Income – Expenses – 0 > 0

The general principle is to always live below your means, whatever the scenario.

In the book The Richest Man in Babylon, the wise businessman said:

Part of what you earn is yours to keep.

You must make it into a habit to save a portion of your salary or earnings when you receive them. For many of us, we only save what is left after we pay for our expenses, such that:

Savings = Income – Expenses

In order to create a surplus and build wealth, we need to keep part of what we earn first:

Income – Savings = Expenses

When we receive our salary or income, we need to take out the Savings portion first, and then live on what is left of the money. Let’s say you are an employee and is being paid at the beginning of the month. It can be a helpful practice that when you receive your pay for the month, the very first transaction you do is to deposit your savings to your bank/investments before you pay the very first bill of the month. In this way, you condition your mind to live only on what is left of your money for the rest of the month.

Increase your surplus

The next step is to increase the amount of surplus that you have. Given our previous formula:

Income – Expenses > 0

There are three ways to increase the amount of surplus.

The first way is to increase your income. A few examples on how to achieve this is:

• Increase the salary that you are able to take home, if employed
• Add new sources of income
• Increase your business’ profits
• Invest your surplus wisely
• Sell things that you own that you no longer use

The second way is to decrease your expenses. This means that you need to take a look at your possessions and identify which of the things that you pay for actually give you value. Do you need to have the maximum bandwidth for internet? Do you need all of the channels in your cable TV? Are you eating out too much and too often? Do you have a car that you no longer use?

Answering these questions enable us to see which areas in our Expenses that we can reduce or eliminate while maintaining our quality of life. Few other examples on how to decrease your expenses are:

• Cancel subscriptions that you no longer use/need (magazines that you don’t read, gym memberships you do not go to, etc)
• Learn to DIY for common tasks like plumbing and basic auto repairs
• Learn to cook so you do not have to eat out as much
• Utilize purchases for as long as possible, for example, do not replace your phone every year as its utility doesn’t really diminish the next year

The third and best way is to do both. By increasing your income and reducing your expenses, your surplus will multiply as you need a lesser amount to live your lifestyle. Again, the main concept in this is to live below your means.

Optimize your lifestyle

So you are happily creating your surplus and finding ways to increase it. At the beginning, this activity seems exciting and energizing as you realize the impact of what you are doing for your future.

Soon you may get the following comments from your friends or your loved ones:

• “you are so cheap”
• “you don’t hang out with us anymore, what’s up?”
• “you only live once, enjoy it!”
• “what good is money for if you do not get to spend it?”

And then you start to look at your co-workers, friends and relatives and notice that they seem to be happier than you are. New clothes, new gadgets, vacations and weekly trips to popular bars litter your social media feed. You then ask yourself:

What am I doing to myself? I work so hard every day, and I deserve to be as happy as them!

And so you start to go back to your spending habits before, and after a few weeks you find yourself to the point where you started.

What happened here?

Its possible that you are over-allocating the Savings portion of your income and you allocate too little to your Expenses so you feel very tight when it comes to money. If you find yourself in this position one solution is to allocate more into your expenses and leisure until you do not feel too financially tight. However, it is also important not to ease too much as to go back to your previous situation where you will begin to accumulate consumer debt due to spending.

Building wealth is a marathon, not a sprint. Popular media constantly highlights people who have achieved “overnight success”, but the reality is more often than not, their success is the result of years and years of failure and hard work. In a similar manner, you need to continue pushing through your objectives even though it seems like there is no progress or you don’t notice any short-term improvements. As building a successful business takes years of effort, so is building personal wealth, so you need to make sure that you can continue doing the same things over and over again: saving, investing in yourself, investing your surplus, and finding ways to better your life.

Some people may try to shortcut the process through saving a lot of their money aggressively and sacrificing their personal happiness for a reward in the future, but this only works for certain kinds of personalities. Sometimes doing so burns them out and therefore fail to achieve their goals or become miserable and disoriented. A more practical approach is to work on your goals consistently over the long term, instead of doing it very intensely over the short term. In order to be able to work on something consistently, you must be happy and content with your everyday situation, or else you will find the whole process very difficult.

Ask yourself these questions:

• Can spending more on things I love make me happier that I am now?
• Am I spending time with my loved ones?
• Do I have any hobbies or passion that takes my mind off my job?
• Do I need a personal philosophy in life?
• Do I celebrate small successes and achievements?

By making sure that we are happy and contented in our daily life, and at the same time working on building and increasing out surplus, you will be surprised on what you have achieved in a few years!

Building wealth is a marathon, not a sprint. Make sure you live while doing it!