How to Level Up Your Wealth Building
You’re a mine worker.
Sorry. That’s your job now.
Your job is to go down into a dark mine that smells like farts because of all the sulfur seeping through the rocks and break your back for 8 hours a day doing activities one would expect in a mine, such as a monitoring canaries or having fights in minecarts.
You know. Mine things.
Anyway, for this work you make $17.31 per hour. That’s $692 per week, or $36,000 per year.
One day, after a dramatic fall that broke your leg, you decided you’ve had enough.
“Mining sucks!” you cried out, your voice drowned out by drilling equipment.
But mining is what you know! It’s all you’ve ever known!
Your daddy and your daddy’s daddy were miners. Your mom and your mom’s mom were miners, too.
(This is going somewhere, I promise.)
Anyway, you’re familiar enough with mining that you know that there’s a mountain, near your work, that’s not owned by any mining company.
You also know, based on experience, that there might be something of value in that mountain—let’s say it’s “plotdevicium.”
In your off hours, before or after work, you go to this mountain and you start to dig.
You’re tired at the end of the day, but not significantly more tired than when you were working just one job.
For fun you decide to start a vlog that you record with your phone, documenting your experience. “Canary Confessions,” you call it. After 6 months you gain 100 subscribers.
As you dig your side mine, you learn things… become better and more proficient at your original job. This gets recognized and you get promoted to foreman, and you begin making more money supervising and managing rather than as a barrow-man.
You work your side mine, you work your job, and you post about your days, your triumphs, your failures, what you discover—all of it. The vlog becomes like a little mine all on its own.
After some time, you discover plotdevicium in your side mine—pounds of it!
You sell the plotdevicium for $2,000 per ounce and use the proceeds to pay off debt.
You also record your discovery in your vlog. The vlog goes viral and you gain 10,000 subscribers.
Now the vlog platform is running ads on your videos and paying you a royalty.
You invest this royalty money in mining stocks, because of course you would.
Anyway, you have enough to hire someone to work for $36,000 per year, and this increases your mine’s productivity five-fold.
You invest some of the proceeds into better mining equipment and a video editor to improve the production of your vlog.
The reinvestment into your little side mine further improves the productivity of the mine and the subscriber count on your vlog.
Now you’re making way more money than you ever did at your original mining job. You quit that and devote yourself full time to your side mine and your vlog, which only further increases productivity and the amount of money you’re making.
On top of that, your mining stocks have been taking off. Between the growth of the stocks and the dividend income they pay, you’ve massively increased your net worth.
Anyway, your income is very high now, your net worth is very high now, and you’re able to afford more people to help you to expand these various sources of income without you ever having to step inside of the mine.
You have someone transcribe your vlogs and hire someone else to turn it into a book, which you then sell, becomes a hit, and you make even more money.
In this fantasy, you quite quickly become a millionaire and even richer than that.
Good job, champ. I always believed in you.
This Path is Possible No Matter What You Do
In last week’s issue of Finance Daddy, I covered the necessity of preparing for the “Back 10” years of your life, and the three things to consider to get the most out of your final years:
The quality of life you WANT
The money you NEED to achieve that quality of life
And what you must DO to get that amount of money
The money, as I proved to you, is likely to be way more than what you currently expect.
To fund 10 years of your life with a little sprinkling of luxury thrown in, you’re going to NEED a lot when you factor in for inflation.
The only way to reduce that is to either reduce what you WANT or increase what you DO.
So what must you do to hit your wealth goals?
Well, the story I just told you at the beginning is, of course, a fantasy…
But there are a few things I revealed in there that should show you the path to leveling up your wealth building game.
I’ll sum up the takeaway very simply:
The key to building wealth is to get paid multiple times for every hour you work.
That’s it. That’s the formula.
Of course, that deserves expansion and explaination. And I’ll explain what I mean in a moment...
Because even though I want this issue to be aspirational, to give you a clear and simple strategy for multiplying and growing your wealth...
First, we need to get the real, no-BS stuff out of the way.
The Path is Simple, but Not Easy
Making a $1 million is hard, let alone making $4.1 million or whatever your retirement goal is..
If you’re working 50 hours a week at $15 per hour, it will take you more than 25 years to gross $1 million total.
And lord have mercy if you’re trying to hit a million by saving alone.
This is why, last week, I said “You will never save enough money to retire.”
If you wanted to simply save $1 million in, say, seven years…
You need to be putting aside $2,748 every single week.
If you’re willing to wait 20 years?
You need to be putting aside $962 every single week.
And if what you save is only 50% of your pay?
That means that, to become a millionaire in 20 years, your take home pay needs to be $100,000 per year AND you need to put aside 50% of your income.
Like the subhead says: This is simple. But it is not easy.
For the vast majority of people, that’s completely unrealistic. After all, the median income for individuals is about $36,000 per year.
Most people operate under the assumption that their job should provide them with enough money to live on as well as enough money to retire on.
But that is just not the world we live in. And it won’t be in our lifetimes.
So forget “getting rich” or retiring early for a moment…
If you want to save up enough to enjoy your Back 10—that is, the last 10 years of your life before you die—simply working an average job for average pay is NOT enough.
You’re going to have to take advantage of one of the most powerful forces in the universe…
Compounding
If you took a penny and doubled it every day for a month, how much would you come up with? A hundred dollars? A thousand dollars? How about a million dollars?
Not even close. If you start with just a single penny and double it every day for 31 days, you’ll end up with… $21,474,836.48. Over twenty-one million dollars in a single month! This is an example of the power of compound interest.
Your original penny will have turned into two. But then those two will have turned into four, those four turned into eight, and so on. The growth of your money will have accelerated, or sped up, not only because your original penny was collecting interest but also because all the pennies you received as interest also began to earn interest. And so the growth built up — or compounded.
That’s how we get the term compound interest, one of the most powerful forces in the universe of making money. But it’s also one of the most profoundly powerful forces in every area of human enterprise.
Investors are able to benefit from compound interest because some assets produce income. That income can be used to buy more income-producing assets.
This is how the rich get richer.
Their money makes them money without them having to work… and their money-making money can be used to make more money.
When you buy a stock or asset at a low price and sell it at a high price, that gain is called “appreciation.”
Both appreciation and income provide a return on investment (ROI). But for the most part, compounding only works with assets that produce income, or that both appreciate and produce income.
Fortunately, there’s a way “level up” your wealth building no matter where you’re starting out.
You don’t need to be rich to have your money make money… you just have to do one thing...
You Must Develop Other Ways to Mine Income
The only way you’re going to get rich is by tapping into the true power of compounding...
The only way to do that is with income…
And the only way to increase your income by a significant enough amount is to get paid multiple times for every hour you work.
If you’re able to do all of that, the rate at which you make money will multiply and accelerate.
(For the sake of simplicity, we’re not going to factor in taxes or inflation, which—pun intended—compounds the complexity of these calculations. And, of course, these numbers are based on what’s typical in the United States.)
Wealth Builder Level 0: You live paycheck to paycheck and save nothing.
Here, at this level of wealth building, you have fallen into a trap.
This is the money you earn by selling your hours to someone else.
Now, there’s nothing wrong with this… In fact, statistics suggest that about 45% of folks never leave this level.
But if you do this alone, you will likely work until you can’t and retire with nothing.
There’s a reason people joke that JOB means “Just Over Broke.”
At this level of Wealth Building, your goal should be to deepen this income mine.
There are only two ways to do this:
Charge more per hour
Work more hours
To do number 1, you have to do whatever is necessary to get a raise or increase your rates. But there’s a natural ceiling to this.
Your boss or your clients don’t want to spend more on you. Even if they like you a lot. Even if you smell really nice in every meeting.
So to charge more per hour, you’re generally going to have to learn a new skill or take on additional responsibilities that are valuable to whomever employs you.
That might sound like a pain, but doing so is far more preferable than number 2—working more hours.
Even if you loved your job… you probably wouldn’t want to do it for more than 12 to 14 hours a day.
So really the thing you want to adjust here is the amount you make.
If you make the U.S. median of $36,000 per year, all you need to do is focus on increasing it by 5% every year. Just 5%! That’s the goal at this level.
Manage to do that, and in 20 years you’ll be earning $90,970 per year.
Wealth Builder Level 0.5: Monetize Your Byproducts
I bet you make really tasty macaroons. Or maybe you brew beer as a hobby. Or perhaps you like to write stories. Or perhaps you walk a dog every day.
Regardless, in all likelihood you produce something in your daily life that has value. Even your excess time has value, if you’re willing to sell it.
But the key at this intermediary (and optional) level is to take the stuff you ALREADY DO, the byproducts of your life, and make more money from it.
If you have a big home garden? Sell your vegetables (or turn them into pickles and sell those for even more).
Do you work daily as an educator? A lathe operator? A trucker? Do you have a hobby? You can make and monetize a blog, a vlog, a website, an ebook.
As you become wealthier or more experienced, this might turn into consulting fees or royalties or licensing fees. Here, the “byproduct” is your experience that other people want to learn from or stuff you made in the past that continues to make money.
You might even consider picking up side work on an “eLancing” platform like Upwork or Fiverr. You might even pick up a gig driving for Uber or picking up groceries for people.
I know, from experience, that it’s totally possible to earn an extra $20,000 to $30,000 per year working a second job or picking up freelancing gigs on the side of a full time job.
Even if it’s not much, a little bit of extra income from the stuff you’re already doing will take you a long way toward your goal--especially if you’re trying to pay down debt or fund some of the other, higher levels of wealth building.
Wealth Builder Level 1: Just saving some cash each month.
You might not feel like this now, but putting aside 10% of your monthly paycheck is supremely doable, no matter what your income level is.
The key to saving is to pay yourself—that is, to sock money away—before anything or anyone else… Before debt, before bills, before anything else.
Don’t even think about it. Just do it.
If you can automate this process with a regular transfer the second your paycheck hits your bank account, even better.
If you’re making $36,000 per year, you’re putting aside $3,600 per year. That’ll leave you with $72,000 saved up in 20 years.
We’re already on the right track, but this isn’t good enough yet.
The key is to start by putting aside 10% a month and making sure that number keeps pace with your income or accelerates.
After all, if you’re earning $36,000 per year, saving 10% of your income is going to have a much bigger impact on your quality of life than if you were earning $100,000.
Still, no matter how much you save, if your cash isn’t working for you, you’re still not going to get close to where you need to be.
Wealth Builder Level 2: Maxing out a Retirement Account and Investing in Safe Stocks
Here’s where your money can start to make money.
Personally, I recommend people start with income-generating stocks, because it’s the easiest and most passive way to mine income.
It takes about 30 minutes to set up a self-directed individual retirement arrangement with a major bank or brokerage firm like Ameritrade or Fidelity. Everyone able to do this absolutely should as soon as possible--even if they don’t yet have the money to invest.
In the U.S., you can transfer up to $6,000 per year into the account.
Now, I don’t think the S&P 500’s returns are going to be that great over the next 5 to 10 years…
But let’s say, as an example, that it grows by 7% per year on average and pays 2% of dividend income.
In year 1, you invest $6,000. In year 2, you’ll have $12,540 (because it’s growing and paying you income). In year 10, you’ll have more than $91,000. And after 20 years, you’ll have nearly $307,000.
Do you see how, so far, this has paid you the most yet required the least amount of work?
You just contribute money each year and let it grow.
Wealth Builder Level 2.5: Setting up an additional investment account
If you’re making enough money that you could, theoretically, invest more than $6,000 per year, you absolutely should.
It doesn’t matter if it’s trading options, buying crypto, using p2p lending services, etc. (If you don’t know what I’m talking about, I’ll give you a breakdown in future issues.)
Don’t let government mandated ceilings stop you from continuing to let your money work for you.
You don’t even need to make much money here to see a huge impact on your wealth.
Say you’re able to put away another $4,000 per year and your assets manage to appreciate 12% per year--a high but not unattainable goal.
After 20 years, you’ll have $288,000.
If you began this process at 30 years old and achieved the goals of the levels leading up to this point, you’re now 50 years old with $714,000 in cash or cash you can easily liquidate.
If you start this process at 50, you’re now 70 with $714,000 to fund your retirement.
Are you starting to see the snowballing effect of compounding, here?
Wealth Builder Level 3: Rental Real Estate
Originally, level 3 was going to be “Start a Business,” but I know enough real estate investors to know:
Managing one or multiple rental properties is much easier than running a business
You don’t need to be particularly knowledgeable or bright to successfully grow a rental real estate investment portfolio.
The key strategy that makes rental real estate work as an income-producing investment is leverage.
Say you have $60,000 and place a down payment on a $300,000 house. Your mortgage will be (at 2021 rates) about $1,500 per month.
If you rent that house out for $2,000, you can use that to pay the mortgage or improve the property.
In about four to five years, you will have paid down the mortgage enough to refinance, get a huge lump sum payment, and use that cash to fund the purchase of your next investment property.
You can then rent that property for more than the cost of the mortgage, and repeat the cycle.
Even if your real estate only appreciates by 3% per year, your initial $60,000 investment will grow to almost $800,000 by itself, without any additional contributions from you.
But even if that all sounds like too much at this stage, platforms like Airbnb make it easy for you to rent a room or a couch in your home.
This can easily bring in an additional $500 to $1,000 per month, per room, depending on your location.
Wealth Builder Level 4: Start a Business
Everything I mentioned before this point is probably all you need to build and secure a wealthy retirement nest egg.
Do the above, and you’re not going to need much luck or skill to turn your time into millions of dollars over the years.
As long as you’re patient and diligent, you can do the previous steps and get rich and still have plenty of life left to enjoy the spoils of your labor.
But if you want to get really rich? And fast?
You have to start a business.
A business that you own and operate is probably the fastest ways to grow your wealth. It’s also the only asset where you can reasonably expect 20% to 30% growth per year or more, depending on your business.
The reason why is scalability...
If you’re working for someone, you have 1 person (your boss) paying you for 1 hour of your time.
If you’re working for a business you own, you can have 1,000 people (your customers) paying you for 1 hour of you or your employees’ time.
That’s the key difference between this and a Level 0.5 “selling your byproduct” kind of income stream…
If you start a dog walking business, or an internet marketing agency, or a consultancy… you’re still just one person earning money from a finite number of clients or customers.
A true business can scale and grow… Here your wealth is only limited by the number of customers who exist for what you’re selling and the amount of money they’re willing to spend.
I’ve seen, from personal experience, a business begin generating $17,000 per year and grow to earning over $10 million per year in under four years.
If you’re an employee working a 9 to 5, try to develop your own business from 5 to 9 (morning or evening).
Wealth Builder Level 5: Direct Investment
Now you’re in the Shark Tank…
Except at this stage, you’re the shark.
Direct investment in a business is, quite possibly, the pinnacle of your wealth building career.
This has all the benefits of owning and operating a business, but without the work or stress of operating it.
In a way, direct investment in a business is a lot like buying stock: You exchange money or time in exchange for partial ownership of the underlying company.
You can buy part of a business by yourself, through an investment vehicle with co-investors, or you can provide a service or consulting to a business and ask for equity in lieu of payment.
Either way, you get an ownership stake in the business, you can potentially draw dividend income from the business, but you don’t have to wake up every morning and work on growing the business.
Levels 0 through 3 would allow anyone with average or below intelligence to grow their money exponentially over time. It’s simple (but not easy) to become a millionaire by leveling up this way.
Levels 4 and 5 are where you start to see multimillionaires and billionaires emerge. But the difficulty curve pitches up quite a bit… it takes intellect, ambition, focus, grit, and a certain je ne sais quoi to succeed at these levels.
Ascend the Levels, Dig the Income Mines, and You Are Practically Guaranteed to Get Wealthy
If you’re able to achieve some or all of the above levels of your wealth building journey and have them continuously grow and complement and compound each other, each one will likely produce more money than you spend in a year.
That way, if one of them disappears, you’ll still have enough money to live on without diminishing your lifestyle.
Now that is a lot of financial security.
You don’t have to match this exact plan. And you certainly don’t need to kill yourself working 80 hours a week to achieve all the levels above (if you progress methodically and cautiously).
Now, if you’re at level 0, you might be feeling a little overwhelmed…
A lot of this might seem totally unattainable to you. You might also be dealing with debt or something else holding you back.
But I will tell you this, over and over again, in the weeks to come…
Every obstacle, all the adversity in your path--you are capable of overcoming it, and you are deserving of success.
But you’re only going to be able to achieve your wealth goals if you start now. Right now. This weekend, if possible.
It doesn’t much matter what you do, so long as you begin doing something to move yourself in the right direction.
