What’s the rush? Why does everyone want to become rich overnight? Americans seem to have a love affair with the dream of becoming a millionaire in their 20s.
But the truth is we can do so much better if we build wealth slowly. By creating a wealthy lifestyle from the ground up, we ensure our financial foundation is solid and sturdy.
The most challenging part of becoming wealthy is keeping your money. That’s why we want to protect our resources as we navigate the future.
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What is wealth? You are wealthy when you have more income than expenses. The more income you have versus your expenses, the wealthier you become.
There are two elements to wealth: high income and low expenses. Most people get this definition wrong.
As their income increases, so does their expenses; we call this lifestyle inflation. They can never become wealthy because they constantly need more money to survive.
What is passive income? If you follow the definition of wealth religiously, you will eventually have much higher income than expenses. But what do you do with the excess cash flow?
You use the extra cash flow to invest in income-paying assets. We call the cash flow from assets passive income.
Dividend Investing in Your 20s
So, to become truly wealthy, you want to have a high level of passive income versus expenses. This setup means you do not have to work to generate revenue and have enough excess passive income to invest in more income-producing assets.
Starting from scratch. So, how do you begin the process of wealth building from scratch? Most of us don’t have much assistance as young people. However, even a slight advantage can lead you to financial freedom.
When you are young, avoid student loan debt at all costs. If you or your parents don’t have money to attend college, join the military, or attend a trade school.
I joined the United States Marine Corps right out of high school, allowing me to build a solid middle-class lifestyle. Plus, I retired at 42 and didn’t have to return to work—not a bad deal.
Start a Food Truck Business toward Passive Income
Do not purchase an expensive car. You can find a great car for under $15,000. Car payments are the death of your wealth-building dreams.
Learn a skill set that allows you to make money without a boss. We will all need to work, but having an income-producing skill set on the side is paramount to building wealth. Remember the two parts of the wealth equation.
My income-producing skill sets are dividend investing, options trading, renting rooms, going to college with the GI Bill, and writing books.
Dividends! Now More Than Ever
Living below your means. Most people do not want to live a normal, mundane lifestyle, causing them to work until they are in their 70s.
If you want a chance to accumulate great wealth, you need to harness the power of compounding. Read “The Compound Effect” to learn more about compounding.
The law of compounding says that your interest income will earn more interest income indefinitely. Eventually, the human brain cannot understand the power of this phenomenon.
Let’s say you rent a room and earn $1,000 at age 25. You invest this $1,000 into the S&P 500 index fund (SPY), which earns 10% annually. By age 65, your $1,000 would have grown into $45,259.
Small City. Passive Income. Great Retirement.
Therefore, the goal of living below your means is to invest in income-producing assets at a young age. You keep harnessing the power of compounding over and over until your passive income becomes more than your expenses.
When you live in a small city, get roommates, drive an older vehicle, use coupons, stay on a budget, limit your shopping, or do your own repairs, you save money that you must invest into assets.
Building wealth slowly means understanding all facets of your money. If you save $25 on groceries today, put that money into a preferred share.
Invest in a closed-end fund if you rent your car for $60 this weekend. When you get a $2,000 bonus, invest it into your dividend growth investing portfolio.
Education Destroys Creativity
To build wealth slowly, you need to have a very narrow focus. Track every penny that comes into your home and ensure it serves a purpose. You can still have a good time; just create a “fun” budget.
Increasing your income. Most of us will need to increase our income by working a job. The military pay system was pretty straightforward. Civilians may need help finding the next pay jump. However, you need to move locations or change jobs.
As your pay increases, you want to keep the same lifestyle; this is the hard part. It is much easier to purchase a nicer car or take a more expensive vacation.
Advertising in the Metaverse
We feel that we “deserve” to spend our newfound cash flow on things we “want.” I personally do not like the word “deserve.” We make too many poor decisions under the guise of the word “deserve.”
You must create additional passive income streams as you work your job. Your job cannot be your only source of income.
Some other income streams are writing books, trading options, dividend investing, becoming a YouTube personality, starting a podcast, selling your creativity, or renting rooms.
Find something that aligns with your lifestyle, timelines, and family situation. For example, if you have a remote job, you want to avoid becoming a day trader, as the stress would consume you.
Blogging vs. YouTube #2
Living on passive income. The ultimate goal of wealth is to retire on the passive income from your assets. You want to have enough excess income to allow you to invest in more assets. That way, the cash flow loop never ends.
The lower your expenses, the faster you can retire. Therefore, if you can pay off your home, you will have more cash in your pocket.
If you start in your 20s, there is no reason why you can’t retire in your 40s. However, most of us don’t get the message until our late 30s.
Still, we can retire in our 50s, even if we have children. Kids can be expensive, but they don’t need to be. They can also live on a budget.
The Magic of Leverage
The more we learn about wealth building, the more we can pass on to our children. The true gift of building wealth slowly is passing the information and assets down to our kids.
Conclusion. The key to long-term wealth is harnessing the power of compounding. To harness this power, you need a big pot of assets.
If your parents did not leave you a big pot of money or a paid-off home, you must do everything in your power to acquire these assets as soon as possible.
If you can build a $100,000 dividend portfolio in your 20s, you will have $30 million in your 80s. Time is the key to wealth.
There is no get-rich-quick scheme. You simply must do the work. Grow at your job, get a roommate, learn an income-producing skill, and invest all excess cash flow. Make sound financial decisions over a long time, and you will become wealthy. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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