How would life be different if you had enough wealth that you no longer worried about money? Maybe you’d sleep better and have less anxiety. Perhaps you’d be able to put those monthly money fights with your spouse to rest. Or maybe you’d simply take pride in having created a better financial future for your family.
For many of us, it’s easy to believe that kind of financial ease is only for “those people.” You know, the executives, high earners, and people who were born into wealth. But I’ve seen just as many people with modest incomes become millionaires at young ages. No matter where you are right now, you can create a life free from financial worry.
My husband, Jer, and I started from nothing and created financial freedom before we turned 40. There’s nothing special about us. We didn’t come from wealthy families. We didn’t have fancy educations or the right network. We simply decided that we wanted our lives to be different and took intentional steps to make it happen. If we can do it, you can too.
Welcome to Step Five in my series on creating financial freedom. I launched this series last month with a post highlighting the surprising benefits of creating financial freedom. Next, I showed you how to figure out where your money is going. I followed that up with tips to build a better budget. In the third step, I shared everything I know about saving. And the last post was all about paying off debt. Which brings us to step five, building wealth.
WHY BUILD WEALTH
There’s a limiting belief throughout our culture that money is evil. We’ve all heard phrases like, “money is the root of all evil” and “mo money mo problems.” But in and of itself, money isn’t evil at all. It’s amoral. Money is a tool that good people can use to create more good in this world.
By building wealth for you and your family, you’ll create more wealth and abundance in this world. You start within your own family by passing your wisdom and habits down to the next generations. Then you can extend your reach by giving generously to empower others to create better lives for themselves and our planet. And some people start businesses that help their vendors and employees build wealth for their own families. Abundance begets abundance.
That’s not to say that wealth is a reflection of your success or value as a person. And money doesn’t guarantee happiness. The point is that a good person can do more good when they have some amount of financial wealth.
HOW TO MEASURE WEALTH
A high income does not guarantee wealth. There are plenty of people earning $250,000 per year who have nothing to show for it. Neither do fancy homes and expensive cars reflect someone’s level of wealth. In fact, according to Thomas Stanley, author of The Millionaire Next Door, most millionaires don’t drive Maseratis and live in mansions.
I believe that financial wealth is equal to net worth – what you own minus what you owe. For example, you might own a home worth $250,000, two cars worth $30,000, retirement accounts worth $100,000, and an emergency fund of $10,000. The value of what is owned is $390,000.
Now let’s say that the balance on the mortgage of that aforementioned home is $200,000. Then there’s $20,000 owed on the cars, plus $40,000 in student loan debt, and $10,000 on credit cards from that European vacation. That’s $270,000 that is owed, making your net worth in this scenario $120,000.
So how much net worth do you need to be considered wealthy? The answer to that question is really subjective. What’s considered wealthy today compared to 100 years ago is drastically different. And I haven’t discussed this with him, but I imagine that Jeff Bezos and I have very different guidelines for labeling someone wealthy. Around the world, people have diverse ideas of wealth. For the more than 700 million people living on less than $2 a day, what you consider poor, they might consider good fortune.
The point is that you get to decide what wealth means to you. How much would you need to live the exact life you’ve always dreamed of? What amount of financial wealth would you need to do more of what you love and invest in your hobbies and interests? How much money would help you to leave the world a better place? Take some time to think about what those numbers look like for you.
My personal wealth goals are tiered. I know how much I need to get by indefinitely. I also know how much I need to have everything I want, which isn’t really that much. And then I have a reasonable projection to live “the good life.” Hello two waterfront bungalows!
HOW TO BUILD WEALTH
I don’t consider myself an expert investor. That said, I’m happy with our net worth for our age and our average rate of return on our investments (ROI). Like most people, we’ve made a lot of mistakes, but we learned so much along the way.
Had I known what I know now when I was 18, my life would be very different today. I would have started saving and investing earlier. I also would have spent less and saved a lot more.
Jer and I started saving as soon as we had “real jobs.” But we mostly focused on retirement savings in our 401ks. The only things I would change about that would be to invest more and start a Roth IRA sooner. While we did okay with retirement savings, I feel like we missed out on the opportunity to invest outside of that. Our lives would be vastly different had we matched our non-retirement investments with our retirement savings.
But since we can’t change the past the next best thing is to focus on the present. We learned a lot along the way and I’m grateful to have a platform to share that. Here are the nine most important things we’ve learned about building wealth thus far.
9 WAYS TO BUILD LASTING WEALTH
1 –MINDSET COMES FIRST
The way we think and feel about money affects how we deal with money. You will never build wealth if you believe that money is the root of all evil. If you have a scarcity mentality and believe that someone gaining wealth means that someone loses, you can’t have a healthy relationship with money.
To varying degrees, both Jer and I had to create wealth-building mindsets. That meant learning to think long-term. That also meant learning to believe that wealth is good and that we deserve to be wealthy.
There are a couple of books I love on this topic. I recommend reading them in this order. And if you take the time to read them, please allow yourself the opportunity to complete all of the activities.
2 – KNOW YOUR NUMBERS
I’ve been budgeting and tracking our expenses since 2011. I have a pretty good idea how much we need to live our current lifestyle. And based on that history, I can predict how much we’ll need in the future.
You can figure out how much you need by following the tips in the first step. To figure out how much you need down the road, check out the resources I shared in the third step.
But more important than knowing how much you need is understanding your why. Why is it important to you to sacrifice today for a better future tomorrow?
Maybe you want to ensure that your children don’t have to struggle the way you did. Or perhaps you want to leave a legacy by supporting a cause that’s near to your heart. You might simply want to reduce the stress in your life and your marriage. Whatever it is, figure it out as soon as possible. Your why will keep you going when things get hard.
3 – BUDGET
As I said in the second step, whether you make $30,000 a year or $300,000, you need a budget. The less you spend on wants and impulse purchases, the more you can use to build wealth, no matter how much you make.
4 – INVEST
Use your money to make money. You could invest in stocks or mutual funds. Be sure to check out the benefits of investing in retirement accounts that I covered in the third step.
Real estate is another great way to invest. To clarify, the place you live or the family cabin are not the focus here. I’m referring to income-generating properties such as rental homes, vacation rentals, farmland, storage units, or commercial spaces.
When investing, I highly recommend getting help from a professional. While I’m not a pro, I’ve learned a few things along the way.
First, the goal is to buy low and sell high. It seems obvious, but every time there’s a big dip in the market, people start to sell. These dips are when I like to buy. I’ll never forget these wise words from Warren Buffett.
I’ve been investing for close to two decades and I’ve seen plenty of ups and just as many downs. I’ve tried to time the market and have failed every time (e.g. the 2016 presidential election). Rather than trying to time the market, I consistently invest money throughout the year.
Which leads to my second piece of advice. Commit to playing the long game. It’s best for us average investors to buy investments with the intent to hold them indefinitely. If we look at the history of the stock market, it’s likely we’ll see success over the long-term. But trying to time the market and get rich quick, rarely works.
I was in college during the dot-com bubble and I’ll never forget my classmates who used credit card and student loans to buy stocks. Tech stocks were booming and when things are going well, we tend to believe that they’ll continue to go well. People were doubling their money quickly and it seemed like a no-brainer. But then the bubble burst and these young kids owed a heck of a lot more than they owned.
This leads to one final tip, don’t buy broke. This is especially important when considering real estate. Don’t invest in real estate unless you have the money to deal with the unexpected. I don’t know why we even call it unexpected. Roofs leak, furnaces die, and sewers back up … all the time. So make sure you’ve taken care of step three before you think about building your real estate empire.
5 – INVEST IN YOURSELF
One of the best ways to build wealth is to increase your income. One of the best ways to increase your income is to invest in yourself.
Some experts recommend investing 10 percent of your income into your education and personal development. I think the most important thing is to find something that has a good return on investment. For example, if you spend $100,000 on a master’s degree that increases your income by one percent, that’s not a great ROI. Unless, of course, you had the money and were doing it solely for the knowledge. On the other hand, you could pick up a marketing book from the library, implement what you learned, and increase your earnings by 20 percent, which is an excellent ROI.
Investments in you could be anything from books to seminars, conferences, online courses, or coaching. These investments don’t need to cost a fortune. The library offers a plethora of free resources. Have you considered becoming an apprentice or taking a community education class?
Don’t fall into the trap of thinking that investments always need to be career-related. We look for opportunities to invest in our marriage regularly. And Jer invests in training in Brazilian Jiu Jujitsu. The benefits of both of these investments flow over into every other area of our lives.
6 – BUILD A BUSINESS
This is something I wish we would have started earlier in life. There are many great reasons to start a business or side hustle. Small businesses are a wonderful way to increase your income and create more freedom and security in your life.
Then there are the tax benefits! I like the way Robert Kiyosaki explains this in his book Rich Dad Poor Dad. He uses the Cashflow Quadrant to show how the tax laws in the US make it more challenging for employees to get rich while investors are able to make their money and taxes work for them.
If you’re thinking about starting a business or side hustle, I love the books The $100 Startup and Side Hustle by Chris Guillebeau. He also has a podcast named Side Hustle School with great lessons and business ideas.
7 – ASK FOR HELP
When it comes to taxes and investing, seek the help of a professional with a proven track record. You wouldn’t take diet advice from an overweight man, but I constantly see people taking financial advice from other broke people. Talk is cheap so when you interview financial advisors, I recommend asking about their personal portfolio.
8 – PAY ATTENTION
Review your monthly and annual statements. I’ve taken it a step further and have been tracking every account monthly in an excel grid since 2012. It only takes a few minutes each month and helps me to identify issues that might need further review. More importantly, it helps us see how far we’ve come and gives us the opportunity to celebrate our accomplishments.
This is your future we’re talking about. You owe it to yourself to take a few minutes each month to stay on top of it. And don’t be afraid to change what isn’t working.
9 – FIND BALANCE
Go all in, but don’t forget to live your life. When we decided to pay off our mortgage, we cut everything we could so that we’d be able to knock it out as quickly as possible. That took two and a half years. While we weren’t going out to dinner and brunch every weekend those years, we did manage to take a nice long trip to Greece.
We never really know how long we have. Anything could happen and today could be our last. Or we could live to be 121 and need a fat and healthy nest egg. That’s why I believe it’s important to find a healthy balance between enjoying your life today while building a solid foundation for your future.
Stop waiting to create financial freedom. You owe it to yourself to make your hard-earned income work for you. Whichever step you’re on, I challenge you to pick one small thing you can take action on today. Being intentional today will change your family’s future forever.
READY TO CHANGE YOUR FINANCIAL FUTURE?
Check out the entire series to learn everything you need to know to go from surviving to thriving.
Step One – Figure Out Where Your Money Is Going
Step Two – Create a Budget That Works For You
Step Three – Saving For Financial Freedom
Step Four – Ditch Your Debt
Step Five – Build Wealth on Any Income
Step Six – Achieving Your Goals As A Couple
Editor’s Note: This post was originally published in July of 2017. It has been completely revamped for accuracy, comprehensiveness, and readability. Please enjoy and feel free to share this newly revised content.
