There are only 3 fundamental skills for building long-term Wealth. We’re not talking about getting rich, we’re talking about getting wealthy! Wealth generation is a 3-legged stool, and without one of the legs, it is impossible to build a stool of wealth. Wealth-stool? Wealth Creation stool? Professor Montgomery’s Fantastical 3-Legged Opulence Chair? I digress…..
So, without further ado, the 3 fundamental skills for building long-term wealth are:
- Make Money
- Save Money
- Grow Money
I know what you’re thinking, “Make money? Yeah, no shit!”. I hear you. The list seems too simplistic. But the fact is that so many people get this wrong. They focus all of their efforts on one or two legs of the stool. And although they may temporarily get rich, they fail to create any long-term sustainable wealth.
Make that Money
This is often the first skill that is obtained. One could argue that we spend the majority of our childhood and early adult life learning this skill. We train up the skills needed to support the overall skill of making money. We live in a capitalist society (and the increasingly capitalist world), and so at the very least money is needed to sustain a certain lifestyle.
There are of course those that simply inherit large sums of wealth. To that, I say that they have already become as successful as they need to at this skill. Well done! We should all be so skilled! But to the rest of us, we need to learn how to create value in the world. And they must learn how to get paid for that value.
Those that neglect this skill never accumulate enough money to work within the first place. Trying to get wealthy with a low income is the mentality of the poor person. Often times these people then try to continuously squeeze a few more dollars in savings out of their meager income. Others resort to hail-mary attempts to suddenly gain wealth, such as the lottery, crime, and extremely risky business ideas. Essentially, they rely on the other two legs of the stool without first having the money to effectively work those legs.
It’s Not What You Make. It’s What You Keep.
So now you’ve figured out how to make enough money. How much is enough? Well, that is up to you. But more is generally better in a vacuum. At the very least, you should have enough money to cover your basic living expenses, repay debt, and have some spending money for a bit of fun.
But that is a pretty low standard really. On the way to accumulating wealth, you need to be saving money. It is a crazy thing to see so many people in America make really high incomes and have little to no net worth to show for it. A classic example of this would be a professional sports star. These individuals can make millions of dollars every year! However, a substantial percentage of them end up bankrupt shortly thereafter. Why is that?
Well, they simply failed to actually save any of that money. As they made more, they spent more. And it is easy to point to those people and say how silly it is that they didn’t save. They had so much to begin with and it would have been so easy. But really, the same principles apply regardless of how much money you’re actually making. If your expenses and spending match your income, you may be very rich, but you’ll never be wealthy. Remember, it isn’t how much you make, it’s how much you keep that determines wealth building.
In order to get wealthy, you’ll have to get your savings rate as high as possible. There is, of course, a compromise. We could all live in a van by the river in order to save a few more bucks each month, but most of us would like to enjoy our life a bit more. Find out what works for you! Save till it hurts just a bit, and keep looking for ways to optimize your efficiency. Once you’re wealthy you can ramp up the lifestyle if you’d like.
Grow Like a Weed. Or Better Yet, A Money Tree.
Finally, we come to the last step. Our income is high enough. And through a disciplined and intentional approach, we’re saving 30-90% of our income (it’s possible, trust me). So now we’re accumulating some real money. That is fantastic! The problem is that the money is worth less and less every year due to inflation. Another issue is that, if you quit working the money stops growing. It likely starts to decrease as you spend it to maintain your lifestyle. Or, you know, just eat and pay rent.
I’m told that people used to be able to just stick money in the mattress, or the bank. The banks had a decent interest rate on savings accounts, and so someone could actually save their way to a decent chunk of change. The savings account supplied the growth that the person needed. I’m sure the mattress was always a bad idea. And not too comfortable I’m sure. But I also suspect that the bank wasn’t a particularly effective strategy either.
Today, with low interest and decent inflation, this is a terrible strategy. The third fundamental skill for building long-term wealth is to grow the money. This website is specifically focused on the use of investment real estate property in order to grow wealth. I believe that real estate is hands-down the best and most accessible strategy for the average person to become wealthy. But I also realize that it certainly not the only way.
So pick a wealth building strategy and master it. Stick to one for long enough to either decide to give up on it, or see that it is working. Popular options are stocks, mutual funds, real estate, and lending money. The idea here is that this should be relatively passive money. That is what differentiates this leg from the first leg of money making.
Summary
So those are the 3 fundamental skills for building long-term wealth. Make money. Save money. And grow money. Master those three, and wealth will be a sure thing. Until next time, take care!
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