How To Build Wealth
The procedure For Building Wealth Has Been the Same For many Years
After reading thousands of pages from over a dozen of the most popular finance books available, I began to realize something. Most of the principles for building massive wealth were the same.
Even though the recipe for building wealth has been the same for thousands of years, most people still won’t pay attention. But if you have the patience to study the age-old fundamentals of building massive wealth, you will likely succeed in building massive wealth.
“Success is neither magical nor mysterious. Success is the natural consequence of consistently applying the basic fundamentals.” -Jim Rohn
I’ve concluded that building wealth and becoming rich isn’t that complicated. It’s simple, really.
It’s not easy, to be sure. Many people will never become “rich,” even if they try their entire life.
But if you follow the fundamentals — the same foundational financial values that have been used by nearly every supremely-wealthy individual in history — you are likely to build great wealth.
Basically, building wealth boils down to this: To accumulate wealth over time, you need to do three things:
1) You need to make it. This means that before you can begin to save or invest, you need to have a long-term source of income that’s sufficient to have some left over after you’ve covered your necessities.
2) You need to save it. Once you have an income that’s enough to cover your basics, you need to develop a proactive savings plan.
3) You need to invest it. Once you’ve set aside a monthly savings goal, you need to invest it prudently.
This makes a simple equation: Income – Spending = Savings
Anybody Can Become Incredibly Wealthy, Because Wealth is a Mindset.
Like many now-wealthy individuals, Robert Kiyosaki from the Rich Dad Poor Dad books once found himself completely broke. In addition, his failed nylon wallet business had left him over $1 million dollars in debt.
Yet he still proclaimed he was a rich man. “I am a rich man!” he declared to his wife with baffling confidence.
He knew he could throw up his hands and give up on ever building wealth again. But he didn’t.
“I am a rich man — and rich men don’t do that!”
Despite the big “zero” in his bank account, his mindset of wealth remained stronger than ever. He has since gone on to amass hundreds of millions of dollars through his Rich Dad Poor Dad curriculum.
Building massive wealth rarely happens unless you have a firm belief that you can do it.
This is the entire premise of books like Think and Grow Rich and The Science of Getting Rich. Building massive wealth starts from the mindset that you can succeed in doing so; if you do not believe you can, you almost certainly won’t.
Of course, simply believing you’ll be rich won’t make it so. But it’s nearly impossible to build massive wealth without believing you can.
Said author James Allen, “As a man thinks, so he is.” Bruce Lee echoed this sentiment: “What you habitually think largely determines what you ultimately become. One will never get any more than he thinks he can get.”
When building wealth, you are likely to receive what you believe you will.
“No one is ready for a thing, until he believes he can acquire it. The state of mind must be BELIEF, not mere hope or wish.” -Napoleon Hill
Great news — an inner belief that you will build massive wealth is something anyone can cultivate.
Developing this identity (“I am rich”) might be extremely difficult for individuals who grew up with “scarcity” mindsets in literal poverty.
But developing an “abundance” mindset that firmly believes you will succeed no matter what it takes for building massive wealth in nearly every case.
One of the main differences between rich and poor/middle class people is their perspective on wealth. The rich see massive wealth as inevitable. In their mind, success is assured.
Building massive wealth starts with your mindset. If you believe you can get rich, you’re far more likely to succeed than someone who doesn’t really believe it.
If You Follow Traditional Advice, You’ll Probably Never Be Rich.
“You must walk to the beat of a different drummer. The same beat that the wealthy hear. If the beat sounds normal, evacuate the dance floor immediately! The goal is to not be normal, because as my radio listeners know, normal is broke.” -Dave Ramsey
This was one of the most eye-opening paradigm shifts I had in all my reading.
This principle was especially apparent in The Richest Man in Babylon, The Millionaire Next Door, and The Total Money Makeover. The wisest financial instructors all seem to be in accord:
Don’t listen to the majority.
That’s because the majority of people aren’t wealthy. Most people are broke, in debt, and have poor financial behaviors. Most people overspend, don’t save, don’t invest, and don’t develop their financial intelligence.
Why on earth would you ever follow their advice?
“One of the reasons that millionaires are economically successful is that they think differently.” -Thomas Stanley
Think of the most common financial advice you’ve heard over the years. It probably includes recommendations like:
- Save your money
- Get a good job with a good paycheck
- Diversify your portfolio
- Be frugal
- Don’t take big financial risks
- Your home is your biggest asset
- Pay off your debt every month
But according to the world’s most influential financial books, this advice is usually bogus.
Traditional advice is actually what prevents people from attaining great wealth. The ideas are usually based on risk-avoidance and fear. They’re too small. Outdated.
Wealthy people don’t touch this stuff.
One of the most common characteristics of massively wealth individuals is that they typically go against the tide of mainstream financial behavior.
Irving Kahn, a 109-year old hugely successful investor once quipped, “I would recommend that private investors tune out the prevailing views they hear on the radio, television and the internet. They are not helpful.”
Warren Buffet agrees. “A good investor has the opposite temperament to that prevailing in the market.”
While everyone is panicking, the wealthy are taking advantage. Ramit Sethi once said, “Fear is no excuse to do nothing with your money. When others are scared, there are bargains to be found.”
Truly wealthy people ignore traditional advice.
In fact, wealthy people’s behavior is commonly considered risky, impulsive, or even dangerous by the majority. Yet, they’re the ones with the fortune.
In short: if you want to build massive wealth, don’t listen to traditional advice.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” -Warren Buffet
Make Your Money Work For You.
“Savings without a mission is garbage. Your money needs to work for you, not lie around you.” -Dave Ramsey
Most people will only ever work for money. They don’t know how to make money work for them.
The Richest Man in Babylon explains that every “gold coin” (or dollar) is like a worker. That worker has the ability to magically produce more workers, if you know how. One worker/dollar could potentially develop hundreds of more “workers” for you.
Every dollar is like a little seed that can grow and sprout more dollars. This is the essence of having “money work for you.”
This picture really struck me. That meant for every fast food meal I bought, I was giving away 4 or 5 little “workers” that could never make money for me again. Same for buying other stuffs.
Furthermore, even if I put my money “safe in the bank,” I was actually wasting my money’s potential. Ramit Sethi wisely points out, “Because of inflation, you’re actually losing money every day your money is sitting in a bank account.”
Every dollar I wasn’t “planting” was a waste of a seed that might eventually blossom into a massive money tree. Why would I throw away my seeds?
I became reluctant to throw away my seeds and instead learn how to plant them to reap the benefits.
This is the entire premise of passive income and investing. Most people will never know the glee of waking up in the morning to discover they’ve made hundreds or thousands of dollars from passive income while they were sleeping.
In this sense, the man who earns $2,000/month entirely from passive income is more enviable than the man who makes $10,000/month in job income.
The first man still has all his time left to build more passive income. The second man, while earning more job income, must spend most of his days working for it. He is limited by the physical boundaries of his energy and by time itself.
Said Robert Kiyosaki:
“The rich get richer by continually reinvesting asset profits back into assets.”
Most people don’t know how to make money work for them. But if you want to build massive wealth, you need to plant your money.
Building Wealth Often Looks Simple and Boring.
“Live like no one else now, so later you can live like no one else.” -Dave Ramsey
This is the premise of Thomas Stanley’s incredible book, The Millionaire Next Door. His team surveyed hundreds of millionaires, and discovered most of them led simple, frugal lives.
“Many people who live in expensive homes and drive luxury cars do not actually have much wealth,” Stanley reveals. “Then, we discovered something even odder: many people who have a great deal of wealth do not even live in upscale neighborhoods.”
Stanley found some fascinating trends:
A typical American millionaire never spent more than $399 on a suit for himself.
Over 95% of millionaires have 20% of their income entirely in stocks.
85% were “self-made” and didn’t work a typical 9–5 job.
Dave Ramsey agrees in The Total Money Makeover. “The typical millionaire lives in a middle-class home, drives a two-year-old or older car, and buys blue jeans at local stores,” he jokes.
It’s easier to accumulate wealth if you don’t live in a high-status neighborhood.
Trying to look like the lawyers, doctors, and hedge fund managers, and startup founders around you gets expensive. And since most people don’t have the discipline to avoid people-pleasing, they waste their wealth on impressing others.
“Keeping up with the Jones’” is real. In fact, trying to simply “look rich” could make you go bankrupt.
“Most people think millionaires own expensive clothes, watches, and other status artifacts. We have found this is not the case.” -Thomas Stanley
When you don’t have superfluous materialism and appearances to distract you, you’re actually more capable of building massive wealth.
Wealth Requires Time to Develop. Patience is Key.
“This is the process by which wealth is accumulated; first in small sums, then in larger ones as a man learns and becomes more capable.” -The Richest Man in Babylon
Often, the richest and wealthiest individuals were the ones that started the earliest and waited the longest.
Warren Buffet has a net worth of over $77 billion. But did you know he never had more than $3 billion dollars by age 59? (Still a lot, I know). He made more in 12 months at age 60 than he did in the previous 59 years. (Here’s an interesting chart of his progress).
Wealth often comes suddenly, after waiting. It takes time. The key is to get started, and develop patience to play the long game.
“The single most important factor to getting rich is getting started.” -Ramit Sethi
Most people prevent themselves from building wealth because they keep wasting their efforts on short-term efforts.
Money is a long game — do you have the patience to play?
“It is human nature to want it and want it now,” says Dave Ramsey. “It is also a sign of immaturity. Being willing to delay pleasure for a greater result is a sign of maturity.”
Ironically, many people who might magically inherit a vast fortune would have no idea how to manage it.
“It is not about making money; the problem is managing money” writes Robert Kiyosaki.
Ironically, a swift and sudden fortune in the hands of an incapable individual would probably destroy them.
You need to learn how to own massive wealth responsibly. That takes time and personal investment.
Just as your money needs time to grow, you need time to mature and learn how to successfully own that much money without losing it or letting it corrupt your values.
“Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self-discipline.” -Thomas Stanley
Massive Wealth Means You Don’t Work — You Own.
“Ordinary people work very hard for little money, clinging to the illusion of job security and looking forward to a three-week vacation each year and maybe a skimpy pension after 45 years of service.” -Robert Kiyosaki
Let’s imagine two individuals. They both want to be life coaches, and they both want to be rich.
The first individual creates a life coaching business from the ground up.
Although he has impressive profits, he is busy all the time. His income is directly tied to how many hours he works, and he can only work so much.
The second individual also creates a life coaching business, but she hires other coaches to do the work. Pretty soon, all her clients go to her hired coaches, and she gets a cut from each client. She only works when she wants to, making money while she sleeps.
This is the power of owning versus working.
If you limit your earnings based on hours worked, you’ll always hit a ceiling. You’re just one person. But if you own the enterprise, you remove all limits. Massive wealth becomes possible.
Building wealth almost always involves owning multiple streams of income — businesses, passive income, side-projects, royalties, stocks, investments, etc.
When you own, you can keep adding to what you own with very little time commitment. Tony Robbins owns nearly 30 companies, yet he barely spends any time on them. He hires others to do the work for him, while he gets a cut. This is typical behavior of the wealthy.
Poor people don’t invest. They don’t own. They work harder and harder for income that is more and more taxed.
This is not how to build massive wealth. Owning is.
Improving Your Financial Literacy is the Greatest Stimulant for Wealth.
“Your level of success will rarely exceed your level of personal development, because success is something you attract by the person you become.” -Ryan Holiday
You will only become as rich as you know how to.
Your financial intelligence (in both words and numbers) is perhaps the single most powerful stimulant for building wealth.
“If you want to build the Empire State Building, the first thing you do is dig a deep hole and pour a strong foundation,” explains Robert Kiyosaki. “If you want to build a house in the suburbs, you pour a six-inch slab. The problem with most people who want to get rich quick is that they’re trying to build the Empire State Building on a six-inch slab of concrete.”
To build wealth, you need a deep, strong foundation of financial knowledge and literacy. Developing massive wealth actually isn’t that rare, but sustaining that level of wealth is.
“Rich people are rich because they are simply more literate in more financial areas than others.” -Rich Dad
Most people don’t have the first clue about “complicated issues” like budgets, cash flow, or taxes. But if you want to build massive wealth, you need to get learned.
If you don’t know how money works, you’ll never build wealth.
Most poor and middle class individuals will never take it on themselves to learn even the fundamentals of building wealth. They don’t invest in education or personal growth. They don’t read finance books, take online courses, or even learn how to create a budget.
Their continued financial illiteracy ensures they — and their family — remains poor until they die.
In the words of Robert Kiyosaki, “Illiteracy, in both words and numbers, is the foundation of financial struggle.”
Every book I read agreed that building wealth required powerful commitments to personal growth, learning, reading, and becoming educated on how money works. Wealth is impossible without the knowledge.
Most people will continue to blame external factors for their financial drought — the economy, their job, their parents, etc. They don’t take responsibility for their own financial education, and so remain poor.
This isn’t always easy, especially for beginners. But if you want to build massive wealth, you need massive commitment to developing financial literacy.
I had to quit telling myself that I had innate discipline and fabulous natural self-control. That is a lie. I have to put systems and programs in place that make me do smart things.” -Dave Ramsey
“The sun that shines today is the sun that shone when thy father was born, and will still be shining when thy last grandchild shall pass into the darkness.” -The Richest Man in Babylon
Wealth is a mindset. Don’t follow traditional advice — it’s usually not helpful. Make your money work for you. Keep going, even if it gets boring. Work to own, and never stop investing in your education.
You don’t have to earn six figures to turn this dream into a reality. But you do have to live and plan today with that goal in mind.
Building wealth starts with proper planning at every stage of your life. Here’s a decade-by-decade look at what you can do to maximize your savings potential especially when saving for retirement.
1. Use your time wisely
Unlike leftovers or an unmowed lawn, unspent money actually gets better with time. Getting an early start on investing for retirement can be almost as valuable as shoveling a ton of money away. (Of course, those who are able to put the two together end up sitting on the real pot of gold.)
Let’s consider three people who have $10,000 a year to invest. The first — we’ll call her Strong-Start Sammy — begins investing that $10,000 at age 25 and continues for 10 years. The second person, Consistent Cathy, starts saving at age 35 but keeps it up until age 65 without skipping a beat. Finally, Perfect Penny one-ups them both by contributing that $10,000 every year from age 25 to age 65.
It’s not hard to figure out that Perfect Penny comes out on top here: She puts away more money over a longer time horizon. The curveball comes from Cathy, who saves $200,000 more than Sammy but ends up with a balance that is only about $35,000 higher.
For that, Sammy can thank — and Cathy can curse — compound interest. The longer your money has to grow, the more you end up with and the less you actually have to save — investment returns start to multiply over time and pick up the slack.
2. Spend less than you earn
You’ve heard people tell you to live within your means. They’re wrong. To really build wealth, you need to live below your means — preferably, about 15% below.
That’s about how much you should be saving for retirement each year (though it’s worth determining a more personalized goal by using a retirement calculator), which leaves us with some simple math: If you want to save that much, you need to spend that much less than you make.
While the math is easy, the commitment to spending less is not. It requires an ongoing value judgement: Is this purchase today more important than retirement tomorrow? If it isn’t, try to pass.
It also requires avoiding high-interest-rate debt, which can effectively wipe out any chance you have of saving enough — and almost always indicates you’re living too large for your budget.
3. Progressively raise the bar
If you can save early and consistently like Penny, you get lots of head pats.
The rest of us need a more reasonable approach: Start small with whatever you have to save, and then regularly increase that amount. Doing so once a year is great; more frequently is even better.
Getting a raise is a good time to do it, as is after you’ve paid off a large debt. Direct that extra money toward savings and you won’t miss it.
4. Use every advantage
Aside from the obvious benefit of saving for retirement — that eternal hammock at the end — there are ongoing benefits, too: If you use the right accounts, you can lap up free money and lower your taxes.
That free money comes if you’re fortunate enough to have an employer plan like a 401(k) that offers matching contributions. Those dollars are an instant return on your investment: If you contribute 6% of your salary, for example, your employer might kick in 3% … and now you’re saving 9% of your income.
The money you put into a 401(k) also reduces your taxable income for the year, lowering the taxes you pay. (You’re not actually avoiding taxes, just pushing them down the road, when you’ll pay taxes on distributions from the account in retirement.)
5. Don’t try too hard
Can you stock-trade your way to retirement? Sure, but you could also sit back, relax and let mutual funds do the work — specifically low-cost index funds or exchange-traded funds, which track a benchmark index such as the Standard & Poor’s 500.
These funds are like baskets that hold small pieces of many different individual investments, which means you get instant diversification, lowering your risk but typically not your returns.