The First Step to Take in Asset Building

“I know I should save for the future, but I’m not sure where to start,” “It looks like I’m saving, but my money isn’t growing as I’d like,” “With the new NISA introduced, should I be investing too?”—many people likely have these kinds of concerns.

In this article, I will explain how to grasp your current standing and the “first step you should take” toward future asset building. Once you clarify what you need to do right now, your subsequent actions will change dramatically.

First, you need to know the basic equation of asset building

Asset building is very simple.
First, please just remember this formula.

Assets = (① Income - ② Expenses) + (③ Assets × Investment Yield)

If you think about it calmly, it makes sense, but there are no factors other than these three that increase your assets.

• Income

• Expenses

• Assets × Investment Yield

Some of you might think, “I don’t want to see a formula like this!” or “I already know this!” but that’s okay. If you haven’t started anything yet, please just keep this in the back of your mind.

The one that is “most cost-effective in my opinion” is “reducing expenses, especially fixed costs.”

① Income: Start with your main job. However, know its “limit”

Efforts to increase income from your main job, this is extremely important.
If you are a company employee,

• a raise

• skill improvement

• changing jobs

Thinking about these things seriously is the standard path. However, what I realized along the way was

Have you ever heard about this while out drinking or chatting with a senior colleague?
“Did you hear? Our department manager’s annual salary is...” I remember having an indescribable feeling when I first heard that.
“Oh, so that’s as far as I can go in this company no matter how hard I try.”


A guide to the income ceiling

I have seen news reports saying that due to inflation, the number of people in Japan with an annual income of nearly 10 million yen has recently increased, or that even regular employees at major trading companies earn over 20 million yen. However, those who actually reach that level are still in the minority, just a handful.

If you feel it is not enough, there is also the option of a side job.
However, to be honest,the cost-effectiveness is often poor.

*Even so, the experience of generating money yourself through a side job will be quite effective later on.”Gaining the experience of earning even a small amount of money builds confidence and leads to trying various things” I have also become like that.

I respect the mindset of thinking that since you get a fixed salary from your main job, it is fine to just do it half-heartedly.
However,”it is more profitable to work hard until you reach a certain level of salary” is what I think.

Although it varies depending on deductions and lifestyle, considering taxes and financial leeway,it is more cost-effective to keep working hard until you reach an annual income of 8 million yen (about 6 million yen after tax).
If you think of it as 4 million yen each for a dual-income couple, it is a fairly realistic goal.

At that time (7 years ago), my annual expenses were 4 million yen and my savings were about 2 million yen.
Actually, from that point on, I started to have some leeway in my life and mind, and I was able to start preparing for life defense funds and investments.
(After that, I have been able to further increase my savings through side jobs and investments. Once you build a stable foundation, the strength of having multiple sources of income has gradually begun to show.)

In Japanese companies, there is still a tendency that once a fixed salary is raised, it is difficult to lower it.
For example, even a 5,000 yen monthly increase means 60,000 yen is added every year.

If you change your way of thinking like that, don't you feel a little more motivated? In my articles, I will try to share information that makes everyone feel as positive as possible, so thank you for your continued support!

② Expenses: The most cost-effective thing is reviewing fixed costs

In asset building,the easiest and most effective thing is reviewing expenses. Especially”fixed costs”

• Housing costs

• Communication costs

• Insurance

• Subscriptions

Once you lower these, the effect”continues every year forever”.

I myself had a period where I only thought about increasing my income.
But in reality,

The power of this was beyond imagination.
For example, just by changing from a major carrier (Docomo, au, SoftBank) at 8,000 yen per month to a low-cost smartphone at 3,000 yen per month for two family members, it is possible to reduce this by nearly 10,000 yen per month.

As a former spendthrift, I was no exception and kept paying 10,000 yen without thinking; it is terrifying to think about it now...
And compared tothe difficulty of raising your monthly salary by 10,000 yen through a raise, I definitely think this is more cost-effective.

Another thing I did was move from Tokyo to the suburbs, reducing my housing costs by about 50,000 yen per month.
It depends on your workplace, but”the largest fixed cost is housing”, so thinking about how to keep this down is ”extremely cost-effective”!
I succeeded in slimming down my communication and housing costs by 720,000 yen per year. Moreover, this is possible”without lowering the satisfaction of communication quality and living comfort at all”.

From the perspective of asset building through investment, I have placed importance on ”how to generate principal in the early stages.” Building a home that I am satisfied with after achieving financial independence is something my spouse and I have agreed upon.

Home loan < Passive income (Focus all efforts on generating principal until you earn passive income!)

I hope you can use this as one perspective to consider.

3. Assets × Investment Yield: Start with surplus funds!

The fundamental premise of investing is securing an emergency fund first. When I first started learning about investing,

• I'm going to grow my money fast!

• It's obvious that I should put all my funds in!

I was impatient with those feelings. But,
"investing with money you can't afford to lose is mentally unbearable". (When I actually put everything in during the COVID-19 pandemic, I just stared blankly as it went down, unable to do anything... I don't want beginners to have that experience, so please, "always start with a small amount.")

At first,

• surplus funds only

• long-term perspective

• index investing

This is truly enough. It may not be flashy, but in investing, "consistency" is the most important thing.

To begin with, why build assets?

Here is a point where I would like you to pause for a moment.

If increasing money becomes the goal itself, it will eventually become painful.

I also had a time when I was

• only worried about the numbers

• comparing myself to others

• and constantly feeling impatient

I think now that asset building is not the "goal," but

This positioning feels the most natural to me.
What is important for that is a "life plan created with your family."
I would like to write an article about this on another occasion.

There is only one thing you should do first.

The conclusion is very simple.

To achieve that, the order of steps is just this.

1. Understand your household income and expenditures

2. Review your fixed costs

3. Increase your income once you have some breathing room

4. Invest assets after organizing income and expenses *It is fine to do 4 in parallel with 3

And,if you have a family, do not decide alone.

Always create your life plan and household budget while discussing them with your family.
This is a point I felt keenly myself.
If things like "Wait, I haven't heard about that" or "I would have preferred this much for living expenses or travel costs" come up while you are in the middle of building it, there is a possibility you will have to redo everything.

Summary

In asset building, the "order" is everything, more so than difficult knowledge.

• Discuss with your family and create a budget in the black, especially by cutting fixed costs. This is the foundation for the future.

• Do your best at your main job until you can secure a certain level of salary!

• For investing, secure an emergency fund, and for products, starting with a small amount in index funds is fine

From there, the next step will naturally come into view.

To my past self,
"who didn't know what to start with,"
this is what I would like to say now.

After moving past the first step and finishing building your foundation, you can start a side hustle or try your hand at individual stocks.
Looking back, I feel that starting with what I could do and working steadily was the best approach in the end. I encourage you all to focus on "doing what you can right in front of you, one step at a time" rather than setting high goals from the start.

Thank you for reading until the end! I hope this article is even a little bit helpful for your life. If you resonated with it, I would be encouraged if you could give it a like, follow me, or leave a comment with your thoughts.

Note: This article does not recommend the purchase or sale of any specific stocks or financial products. Investing involves risks, including the loss of principal, so please make your final investment decisions at your own responsibility.