We already know that a core pillar of taking control of personal finances is reducing living costs, which leaves more margin to save and invest. We also know that implementing this is far easier said than done, as it involves a deep understanding of what drives us to buy, and the ingrained role status plays in driving our purchasing decisions. For most, managing these social status needs alone is an extremely difficult psychological mindset to grasp, let alone to master.

However, once theres a strong handle on these social needs and everyday spending is tightened, it's often seen as the end game to growing wealth and financial security, yet this is a misleading mindset. Lowering spending is a critical piece of the puzzle, yet it is only the foundational piece of the puzzle, not the leading strategy. Many stop here and lose sight of the critical next step, building financial margins by creating more value.

Cost minimisation has its limits

Once you're in control of your spending, by realising you need far less, it becomes extremely easy to implement, and sadly, this is where most people stop, thinking they'll minimise their way to financial independence.

The problem with constant financial tightening, is it's a limited strategy. You can only optimise down from your current income, and then there is still a relatively fixed cost of living baseline that you can’t drop beneath. You want to reduce your social needs, but you still need to live a life that isn’t completely dictated by penny pinching.

This is where the mindset of value generation comes in.

Value creation has upside with no limits

The meaning of value creation is simple, if you can generate a product that provides value to society, you'll be financially compensated by society based on how useful (or valuable) that product is. The beauty of creating value, is that its upside is limitless, there's essentially no cap on how much value you can generate.

If you generate $100 of value a day, say by working on a reception desk, and it costs you $50 a day to live, then your net gains are $50. A cost minimiser will seek to reduce the $50 cost to say, $25, this provides a net gain of $25, but in doing so halves daily expenses, which for most would have a significant impact on living standards. You're limited in how far you can minimise.

Yet for value creators, the potential to increase your daily value is essentially unlimited, it could be anywhere from a net gain of $25 to $100,000. Value creation is where all the potential upside is, without impacting daily living expenses, yet so many put all their focus purely on cost minimisation.

The obvious challenge with value generation, is it requires an aggressive, offensive mindset. This is A LOT harder than cutting the expenses off already existing daily activities. To get out and generate value is far more challenging, yet the rewards are FAR greater.

Minimise costs first, then find more ways to deliver value

This is what the cost minimisers miss, increasing optimisation is a foundational mindset, but once the foundation is set, there's only so much more value you can wring out of it. The real game is focusing on value creation, finding ways to increase your contribution to society, to unlock the potential of the unlimited upside. Minimising is critical but quickly hits a limit, building value is where the financial opportunity is infinite.

Key takeouts for the upside of creating value:

• Cost minimisation is only foundational: While establishing a mentality of cost minimisation is a critical foundation, it's only the first foundation. Always run a pulse check on current spending to find efficiencies, but the value of a pulse check is to keep the ship on path and to avoid spending creep, it is not the primary strategy to wealth.

• The upside is in value creation: The market decides how to price the value you create, so creating value has uncertainty, which means it can take a lot of time and effort to work out. Cost minimisation can be solved rather quickly, which leads many to gravitate towards it at the expense of value generation.