The focus of wealth accumulation is most commonly on income generation and smart investing strategies. If you want to be serious about becoming wealthy though you also have to play great defence.

I’ve picked the term defence up from the classic book The Millionaire Next Door byThomas J. Stanley and William D. Danko. The book is the culmination of 20 years of studying how people become wealthy. And guess what? They consider defence to be the foundation stone of wealth creation. Well as a longtime basketball fan this caught my attention.

Defence means taking control over your spending. Firstly, you should be spending less than you earn. Secondly, you should be frugal when spending on consumer goods and services. Thirdly, you should develop the habits of planning and budgeting.

Here are some tips to improve your defence:

1) As I have previously written about, Pay Yourself First.

2) Find ways to reduce your everyday costs, for example:

take lunch to work with you each day
consider going without that coffee from Starbucks
join a library
shop around
ask for a discount

3) Don’t carry a credit card on you. This makes it harder to make impulse purchases with money you don’t really have.

4) Keep track of your spending. You will honestly be surprised at where your money goes. This will help you find every costs to reduce, and will help with the next point….

5) Create a budget. A budget is basically a plan that shows what money you plan on spending.Another important point to consider is this: if you are in you are in a relationship your partner should also have the same attitude as you. It no good you going without a $3 coffee each day if your partner loves to spend money.

My partner, Kathryn, and I are naturally quite frugal. We have successfully used all of my hints above except for the creation of a budget. We live a good life at the moment on a sole income (Kathryn is a stay at home mum with our newborn son). However, this can always be imroved and I therefore wish to use this post to publicly challenge myself (and Kathryn) to create and use a budget. I’ll keep you updated on how I go.

Update 1 May 2007: we now have a budget up and running. I’ll write more about it once its been operating for a few weeks and I’ve had a chance to make some tweaks.

Tags: Money, Personal Growth //