How to create a gap?

Creating a gap, particularly in the context of personal finance, involves strategically managing the difference between your income and your expenses. Here are some key points discussed by Brad Barrett and Jonathan Mendosa on the ChooseFI:

1. Increase Income and Reduce Expenses: The fundamental equation is what you earn minus what you spend. To grow the gap, it’s often effective to start by trimming expenses. Even small reductions can significantly enhance financial freedom by increasing the margin between earnings and expenditures 1.

2. Invest in Time and Prioritize: Reframing spending as an investment in time can create more long-term benefits. Delayed gratification, like waiting to make significant purchases until your investments can cover them, helps in achieving more substantial future rewards 2.

3. Create Opportunities for Luck: Beyond earning and saving, consider engaging in activities that enhance your skills or open new income streams. This could involve professional development, side hustles, or salary negotiations, thereby giving you more chances to increase your income over time 3.

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     1

     Expanding the Gap

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     2

     Delayed Gratification

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     3

     Creating Opportunities for Wealth

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     4

     Building Financial Margin

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4. Financial Margin for Security: Building a financial margin gives you a buffer against financial instability. This margin adds security, knowing you have savings to fall back on if income fluctuates or unexpected expenses arise 4.

By focusing on both increasing income and reducing expenses, while being mindful of spending as an investment in future freedom and opportunity, you can effectively create and expand the gap.