It’s funny that the steps we are given at a young age to become rich will not really make us rich. We may become wealthy over a long span of time, but not as fast as they allude to as we are growing up. Their four steps for wealth are:
1) Get good grades
2) Get a college degree or higher
3) Get a high-paying job
4) Invest in a diversified portfolio of stocks, bonds, and mutual funds
Well, I tried their way to wealth for 20 years. I got excellent grades in high school. I went into the military instead of college, but they offer similar results. I have a high-paying six-figure job, and I invest in the military 401k (called TSP). While this lifestyle made us somewhat comfortable, it did not make us rich.
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Now, I am 40 years old. I guess I could have given this lifestyle another 25 years and became rich at 65 years old. Ultimately, that is what their advice is for: to allow us the privilege of working until we are 65 years old—drawing social security, praying our 401k balance survives our lifetime, and paying off our house.
After trying it their way until I was 38 years old, I tried it my way for precisely two years while still in the workforce. My wife and I became rich in two years (from age 38-40). You can read more in “From -$77,000 to +$150,000 in 22 months.”
“Okay, Josh, that’s enough chit chatter; what are your four steps?” Sorry, I like to compare their way to my way to get the contrast between the two. My four steps are straightforward, and you can perform with or without a college education. In my four steps, you are center stage, no need to blame anyone else. Your boss, spouse, and family all have no bearing on your income and path to wealth. Your mindset is your ticket. Here are my four steps to becoming rich:
1) Pay down debt
2) Lower expenses
3) Create multiple streams of income
4) Invest in assets
I can sum up my four steps in one simple quote “Wealth is having excess income vs. expenses.” This quote is so powerful because you can control your income, and you can manage your expenses, so by my simple calculations, you can control your wealth. Therefore, you can make yourself rich.
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But is it really that easy? Yes. My wife and I have $3,000/month expenses, and we have an income of $17,000/month. We are rich. We only worry about money because we put so much going into investments that we sometimes have to scramble for day-to-day, non-ordinary things. It’s not a bad problem to have. Here is a quick overview of how we followed these four steps, and then I will give my detailed guidance on each step.
1) Pay down debt. We paid off all of our debt, and we are 100% debt-free. We understand that we may incur some indebtedness from time to time, but not soul-crushing consumer debt. Becoming debt-free is the most freeing experience that you may ever have.
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2) Lower expenses. Paying off debt such as credit cards, personal loans, and car payments helped us significantly lower our costs. However, the biggest contributor has been not having to pay our mortgage. Most people spend 40-50% of their income on their mortgages; we pay 0%. This mindset has accelerated our wealth into full gear.
3) Create multiple streams of income. If your only income is your job, then you are doing something wrong. We created multiple streams of income across all asset categories. The other income streams may not be as high as our jobs, but that is not the point. Not only do we build income streams, but we are also diversified and protected against job loss.
4) Invest in assets. An asset is anything that puts money in your pocket. By purchasing, investing, or building assets, you are building income streams and allowing yourself to become financially free. Eventually, you will get the point where income from your investments will be more than your expenses, at which point you will become financially independent.
Okay, now let’s get into the nitty-gritty. I have been writing about becoming financially independent for over a year. During this time, I have accumulated many articles and read many books on the topic. I will attempt to give you the best guidance to move forward on your journey.
1) Pay down debt. First and foremost, I always recommend reading two books, “Rich Dad Poor Dad” and “I Will Teach You to Be Rich.” These are the first two books I read on my journey. They will give you the proper education and training to get out of debt and start focusing on building a collection of assets.
Print Your Own Money
Next, I would read these articles “Start Investing or Pay Down Debt?”, “Good Debt vs. Bad Debt,” and “Should I Consolidate Debt?” These articles will help you frame your situation and start making moves towards paying off debt.
To be honest, debt sucks, and paying off debt sucks just as bad. Looking at your online credit card statement is a drag; however, stick with it. Once you pay it off, you will feel as though you are moving twice as fast through your life. It is a fantastic feeling.
I would also throw in a couple of articles on mindset because building up your resilience will ultimately get you to your mental destination. “Strong Finances, Strong Marriage: 10 Steps to a Healthy, Wealthy Marriage”, “The Road to Wealth,” and “Success is a Habit: What is Your Daily Routine?”
2) Lower expenses. The best way to lower costs is to create an intense budget. Yes, a spreadsheet. Record every penny leaving your wallet. There is a quote, “What gets measured gets managed.” You will need to see what you are spending your money on and get your bills under control.
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Budgeting is an excellent time to evaluate your actual needs. Do you need Netflix, Hulu, unlimited phone data? It may seem small, but when you can reclaim $200/month towards debt repayment, it can be huge!
The best article that I wrote on budgeting is “Why Budgeting is Important to Wealth Creation.” In this article, I speak to the fact that a budget helps control lifestyle inflation. Lifestyle inflation is the killer of wealth, and comparing your budget to last month, will keep your life in order.
Beyond creating a budget, the number one thing I recommend is getting your housing expenses below 20% of your income. There are two ways to do this, increasing income or decreasing housing expenses. I choose to use both.
The article “Mortgage Zero” explains my methodology to living for free in your own home. If you can adjust your mind to start sharing, you will accumulate wealth faster than you can say “share.”
Also, understanding your taxes is a great way to lower expenses. Taxes are the number one expense for most people, so understanding how to keep more of your income will pay dividends throughout your journey. I recommend reading my Taxes 101 series (101, 102, 103).
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3) Create multiple streams of income. Now the fun begins. Most of us are taught that the only way to make money is by getting a degree, building a resume, applying for a job, having a boss, and climbing the corporate ladder—this couldn’t be further from the truth.
If your parents didn’t have many assets, like mines, then this path is the best way to create security for yourself. However, don’t become stuck in this mentality. The workforce will drain all creativity from your soul. When you get home from work, you will want to grab a beer and flop in front of Netflix.
Don’t fall into this trap. America used to be full of entrepreneurs. We all can create money from thin air; we just have to tap into our capitalist natures. I wrote an article on “How We Created 13 Streams of Income.”
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When adding more streams of income, avoid the easy way. The easy way being “earned income” or exchanging time for money. Jobs like delivering food, driving Uber, or working at the mall. Once you have exchanged time for money, you cannot revisit that income. When you stop working, your money stops.
You want to build something, an asset, that continues to pay you after the upfront work—for instance, writing a book or creating an online class. I wrote an article called “20 Creative Ways to Make Money From Home” that will help guide you on your journey. Here are a few more ways to maximize your income.
“Become a real estate agent.” You are trading time for money; however, you are networking in the most lucrative fields around. Your networking contacts are the end goals and will hopefully lead to investments that pay you passively.
Create NFTs. Non-Fungible Tokens are brand new (3-4 years old) and still have massive growth to achieve. Understanding them can help you gain a leg up before they become mainstream. Here are two books to read to understand the blockchain (cryptocurrencies) “Ethereum” and “Bitcoin: Hard Money You Can’t F*CK With.”
Trade Options. If you have some money lying around, you may want to try your hand at options trading. If you can get a ruleset that you follow, you have a good chance of becoming successful no matter what. It is something that I think can be an excellent way to supplement your lifestyle if you can grasp the concepts.
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4) Invest in assets. Finally, you have come up with a plan to pay off debt, lowered your expenses, and created multiple streams of income. Now you should have an influx of cash compared to your bills. This “extra” money is called cash flow, and these are the two most important words of wealth creation.
Buying assets allows you to increase your money even further and keep earning money even when you stop working. Owning assets are the key to financial independence and long-term wealth generation.
Our assets fall into five pillars of wealth. You will need to learn about each of them to become savvy investors. Never stop learning. My Cash Flow series is a great place to start your journey (Cash Flow 101, 102, 103, 104). My five pillars are retirement assets, investment assets, real estate assets, business assets, and crypto-assets. Let’s take a speedy look at each.
Retirement assets are your 401k, Roth IRA, pensions, annuities, and such. I don’t tend to focus too much of my attention on this area, but I also have a substantial military pension coming my way when I retire. So, you may need to focus more on this pillar.
Investments assets are dividend-paying stocks and interest-paying bonds. You can learn more about these in my articles “Investing for Dividends: Dividends for the Rescue” and “Municipal Bonds: Tax-Free Goodness.” I wrote a book on Retiring on Dividends.
So You Think That You are Middle Class? ….Haha
Real Estate assets are well known for making millionaires rather quickly. However, the real estate market is exceptionally pricey currently, and it can be hard to get involved. I recommend reading my series “Creative Financing in Real Estate 101, 102, 103” to get some ideas on how to jump into this lucrative world.
Crypto assets are relatively new but can assist you in your wealth creation pursuits. Most of the world is interested in the capital gains that cryptocurrencies seem to bring about. However, there are “Passive Income in Cryptocurrencies” and buy-and-hold strategies that align with actual wealth creation. Also, NFTs will be a hot commodity soon, and there is still time to jump in and become a major player.
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Business assets can either be automated businesses that produce passive residual business income or royalties from your creations, such as music, books, or videos. Having both will allow you to retire prosperous and happy. Here is an article on “Passive Income: Automation vs. Royalties” and another on how to “Retire Rich, Retire Comfortable from a Business.” I wrote a book on Retiring with a Business.
Conclusion. Whew, that is a lot of reading. Every time that I write an article like this, I am amazed at how many articles I have written and books that I have read. And I am just getting started.
You see, my articles have become assets to my business. I can now leverage them how I want. I own them, and their job is to make me money. Over time, as your assets grow, it will become easier to make money.
I have linked 32 other articles inside this one. If I were to write out all the other articles, it would take me a month to write this article instead of having my pre-built links. But the work has already been done. These articles are assets, and I can now reap the benefits of this prior work.
Remember, when you work for money, you don’t get this benefit. Once you complete the work, you will have to do it again to earn money. With assets, you can keep leveraging the investment multiple times to make more and more money.
As you start your journey, making money is not the goal; obtaining assets is the goal. These assets will do all the heavy lifting for you. However, to acquire assets, you will need self-education in business, real estate, cryptocurrencies, and investments. You can create assets, buy them, or build them. I hope I provided some value to your life mission and Good Luck!
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