Everyone is looking for the best way to become wealthy. But some factors are more important than others.
Sure, if you can identify Altium Limited (ASX: ALU), Pro Medicus Limited (ASX: PME), A2 Milk Company Ltd (ASX: A2M) or Appen Ltd (ASX: APX) at an early stage then you'll do very well. But you have to either be lucky or a very good investor to identify those opportunities early on.
Instead, the single biggest thing that everyone can do to boost their wealth is simply focusing on the simple equation of spending versus earning.
In other words, spending less than you earn is integral for boosting your wealth.
Your after-tax earnings is what you have to play with. If you spend it all then there's nothing to invest. But, there is a huge difference between saving $5,000 each year compared to $10,000 a year or $20,000 a year.
A household saving $5,000 a year would have to be amazing investors to keep up with the wealth building of households saving $10,000 a year or $20,000 a year.
I've deliberately not said it's a matter of earning more necessarily, although that really helps. Imagine a household that earns $100,000 a year after tax and spends $95,000 of it versus a household that earns $60,000 a year after tax and only spends $50,000.
Which household will generate wealth quicker? Over time the lower-spending household could actually retire even earlier because they would need less wealth to sustain their yearly expenditure.
But, at the same time, don't feel like you need to hoard every last dollar. The idea is only spend money on necessities and other things that make you truly happy.
