The Wedge Principle

A vital element of managing your wealth and your investment portfolio is something I like to call The Wedge Principle. 

The problem I usually see with people who feel bad about their financial situation is they’re stuck in a cycle. It’s really simple and can happen without them even noticing.

You might start your working life somewhere in an entry-level position. And you’re making an entry-level wage. And that’s enough to get by. But when you start earning more, what happens? 

Most people start spending more too. They feel that now they’re earning more, they’re entitled to use that money on themselves. And they should, to an extent. But if you let it get out of hand, pretty soon you’ll be earning a lot of money and still only be breaking even. 

I want to break you out of that cycle. 

That’s where The Wedge Principle comes in. What separates people who succeed financially from those who don’t is not how much money they start with. It’s about what they do with their money.

It doesn’t matter how much money you have. I want you to make a commitment now, in advance, that the next time your income increases or you receive some unexpected extra capital you will invest a certain percentage of it. How big of a wedge will you chip off and put towards your financial freedom?

It’s important to do it in advance because when it comes, there will always be a thousand different things to spend it on. It’s also important that you make it a percentage. The more money you have, the more tempted you will be to use it frivolously.

So, make a decision. Create a wedge right now, and when you get your next raise or make more profit, you’re going to take that wedge and invest it. 

That’s how you go from working hard for your money to getting your money to work hard for you. 

— Todd Polke