Using your Discretionary Income to Build Wealth

Many people view discretionary income as having fun and enjoying life. This income is that extra money left after all your expenses are paid. It can be a great tool for building wealth if used correctly. Here are some tips on using this money to improve your financial situation.

1. Start by Creating a Budget

NO FUN!! I know but creating a budget will help you to see where your money is going and where you need to cut back. By understanding your income and expenses, you can figure out how much extra money you have each month and most importantly, where you can invest and make your money. As discussed in the 1926 novel ‘Richest Man in Babylon’ George Clayson states the 2nd Rule is to “Control Thy Expenditures.”

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2. Stocks, Mutual Funds or Real Estate

When you invest in stocks, you essentially buy a company ownership stake. Over time, as the company grows and becomes more profitable, the value of your shares is likely to increase. That can provide you with a significant source of income, which you can then reinvest in other stocks or use to purchase other assets. Similarly, when you invest in mutual funds, you are pooling your money with other investors and investing in a diversified portfolio of assets. That can help mitigate the risk of any one investment performing poorly and provides the potential for significant returns over time. Therefore, using your extra money in stock or mutual fund investment is an excellent way to build wealth.

Another vehicle is Real Estate. Purchasing investment real estate provides cash flow every month or quarter, offers appreciation, and has numerous tax advantages. **SPOILER ALERT** This is my favorite investment vehicle. Many, if not most real estate investors start by purchasing a single family residence then graduate into multiple houses. Some will eventually graduate into apartments or (multifamily).

3. Saving for Retirement

For most people, the biggest financial goal is to retire comfortably. But with the costs of living rising and pensions becoming less generous, fewer, and fewer people can achieve this goal. One of the best ways to ensure a comfortable retirement is to start saving early and often. You can do so through various methods, including 401(k)s, IRAs, and annuities. The key is to start saving as early as possible so that you can benefit from compound interest. You can watch your savings grow over time by using that extra cent to make regular contributions to a retirement fund.

Additionally, many employer-sponsored retirement plans offer matching contributions, which can help you boost your savings even more. Be sure to consider how much you’ll need to save to retire based on your desired lifestyle comfortably. With a little planning and discipline, you can ensure you have the resources you need to enjoy a comfortable retirement.

Another Rule in Richest Man in Babylon is: “Start thy purse to Fattening.” The suggestion by the main character is to save 10% of your earnings before paying any other bills…

4. Investing in Real Estate

For many people, building generational wealth is a far-off dream. But it doesn’t have to be. Generational wealth is built by investing in assets that appreciate over time. Real estate is the best way to build generational wealth for many people. It is a solid investment that can appreciate over time, providing you with a nest egg that you can pass on to your children and grandchildren. It can be a more stable investment than stocks and mutual funds and provide a steady income stream. And with the current housing market, now is a great time to invest in real estate. Of course, there are risks involved in any investment, but if you do your homework and choose wisely, investing in real estate can be a great way to build your wealth.

5. Paying Down Debt

If you want to use your discretionary money to build wealth, one of the smartest things you can do is use it to pay down debt. High-interest debt, like credit card debt, can quickly eat into your savings and make it difficult to keep up with your financial goals. Using your extra cash to pay down debt, you can save on interest payments and reduce the overall debt you owe. Paying off debts can also help improve your credit score and give you more financial flexibility. In addition, paying off your credit card debt will free up more of your monthly cash flow, which you can use to save for other financial goals. So, if you’re looking for a way to build wealth, using the extra dollars to pay down debt is a smart place to start.

6. Invest in Yourself

Another excellent way to use the extra money is to invest in yourself. That means taking the time to learn about personal finance, investing, and other wealth-building strategies. It also means committing to building your financial future. After all, who will if you don’t believe in your ability to generate wealth? You can make yourself a more attractive investment prospect by taking courses, attending seminars, and reading books on investing and finance. And the more rich knowledge you have, the better equipped you’ll be to make sound financial decisions that will grow your wealth. When you invest in yourself, you’re not just making a one-time purchase; you’re deciding to become wealthy. So, to become rich, you must invest in yourself.

7. Put It into Savings

It’s no secret that the key to building wealth is saving money. However, setting aside a certain amount of money each month is not enough. To build generational wealth, you need to be strategic about how you save your money. One of the best ways to do this is to use your discretionary income to build up a savings account. By putting it into savings, you can grow your nest egg while still having enough money to enjoy your life. In addition, using your extra cents to build wealth is a great way to teach your children the importance of saving for the future. Teaching them the value of delayed gratification can set them up for a lifetime of financial success.


When using your discretionary income to build wealth, it’s important to remember that not all forms of wealth are created equal. For example, paper assets like stocks and bonds can be highly volatile, whereas investing in real estate or precious metals tends to be more stable. It’s important to think carefully about where to put your money and what kinds of returns you’re looking for. It’s also worth noting that this takes time, so don’t expect to see overnight results.