The 5 Keys to Building Wealth

Building wealth is a journey that requires determination, discipline, and some simplified planning. One of my favourite quotes that we reference regularly in our businesses comes from Tony Robbins who says, “Complexity is the enemy of execution.”

While the financial world has done a terrific job of making things very complex for us, we thankfully still hold the ultimate power in achieving financial success. The world may throw whatever roadblocks or challenges at us although it’s our execution that will breed our results. 

I’ve found the more I block out the noise coming at me from others, the more financial success I have achieved and the more enjoyable the journey has been.The noise only adds to the complexity and often robs us of our enjoyment of the process.

Unless you’re in the business of finances yourself, then you really don’t need to understand that much about finances in order to live a financially enjoyable life. You simply need to follow a proven model of simplicity and be accountable to it. There are plenty of opportunities to earn more financial wealth when you dedicate more time to that area of your life, however there are also opportunities to lose a lot more too. Despite what we’re made to believe, growing your wealth does not need to be complex, and often the simplest wealth building plans are the most successful.

“There seems to be some perverse human characteristic that likes to make easy things difficult.” – Warren Buffett

Take former UPS employee Theodore Johnson for example, who despite early frustrations with this system, agreed to invest 20% of his salary and live off the remainder. This habit became easier with time and eventually he retired with $71 million dollars as the New York Times reported in 1991. His wealth was built on that 1 simple habit of investing 20% of his salary for an extended period of time.

We all have the same opportunity today that Theodore Johnson had. Sure, it’s not easy to live off of only 80% of our income. That is something that surely will require some sacrifices for many of you. 

But here’s the thing…You don’t need to start with investing 20% of your income. It’s not as much about the percentage you put aside to invest with, as it is about building the habit of investing part of our income. You could choose to start with 1% for now to get the habit started, and then add on more and more as you reach higher income levels. 

I call this habit building process building your money machine. This money machine is something that can be built on the side and eventually it will begin to spit money at you, like a “money machine.” In my opinion this is the most important money habit you could ever build in your life.

The road to financial success is paved with five essential keys: Earning, Spending, Saving, Growing, and Contributing. In the rest of this blog post, we will delve into each key, exploring their significance and how they intertwine to unlock the door to building lasting wealth.

Earning: Empowering Yourself with a Strong Foundation

Earning is the cornerstone of wealth-building, providing the resources necessary to embark on the journey towards financial prosperity. While earning potential can be influenced by various external factors, it’s essential to focus on personal growth and continuous improvement. Invest in education, skill development, and networking to bolster your earning potential.

However, earning is not just about the number on your paycheck; it’s also about finding purpose and fulfillment in your work. Aligning your passions with your profession can lead to increased motivation and productivity, ultimately contributing to your financial success.

Your income is determined by the amount of value you add to society. Focus on value add in everything you do and be patient. Eventually the world will recognize your value and your income will inevitably reflect that. 

Spending: The Art of Mindful Consumption

Spending wisely is an art that many struggle to master. It involves a delicate balance between fulfilling our needs and wants while keeping a watchful eye on our financial health. Mindful consumption involves creating a spending plan (budget), tracking expenses, and making informed financial decisions.

Identify your priorities and focus on investments that will improve your quality of life in the long run. Avoid impulsive purchases and opt for a conscious approach to spending that aligns with your financial goals. Remember, every dollar spent today has the potential to impact your wealth-building journey tomorrow.

I like to use the following breakdown as a cornerstone of our family’s spending plan:

The Essential 65%

15-20% goes to household expenses

7-10% goes to transportation

7-10% goes to food

5-10% goes to health & clothing

10-15% goes to entertainment, recreation and travel

The Discretionary 35%

Debt payments

Investments

Cash savings (at least 3-6 months)

Charitable giving

Saving: Building Resilience and Security

Saving is not just about setting money aside for a rainy day; it is about building resilience and safeguarding your financial future. Establishing an emergency fund can provide a safety net in times of unforeseen challenges, preventing you from falling into the vicious cycle of debt. For most people having 3-6 months of cash reserves on hand will provide for a feeling of security and safety that is desired. 

Balancing saving and growing/investing though is more of an art than a science. If you  build u p your knowledge on investing you will probably feel more safe investing more and more of your money so it’s constantly growing. When you’re invested into cash producing assets then those assets can produce cashflow for you to live off in case of emergency. You may also have the ability to leverage those assets and utilize that cash to survive challenging times. 

The biggest key here is to automate your savings. Every dollar that comes into your account should have a portion of that dollar being automatically transferred into your savings and investing accounts. 

Growing: Nurturing Your Investments

While saving sets the foundation, growing your wealth requires you to invest. You NEED to invest in order to become wealthy. 

Stocks, bonds, businesses, commodities, and of course real estate can all be worthwhile investments to consider. The earlier you start to invest, the more opportunity you have for compounding to take place and to grow your portfolio. Timing the markets is a game for fools. Spending time in the market is what counts. 

If you’re trying to time the market, it’s likely because you’re looking for some sort of get rich quick scheme. Building wealth is about long term investments and long term growth. 

Don’t wait to invest. Invest and then wait!

Contributing: Cultivating Abundance through Giving

The final key to building wealth lies in embracing the power of giving back. Contrary to conventional wisdom, contributing to charitable causes or supporting your community can lead to a more abundant and fulfilling life.

Philanthropy not only makes a positive impact on the lives of others but also cultivates a mindset of abundance. It reinforces the belief that you have enough to share, which can attract more prosperity into your life. Additionally, charitable contributions may offer tax benefits, making giving a win-win situation.

You’ll never give away $1M out of $100M if you won’t give away $1 out of $100. Giving, like investing, is not something to wait on. Start giving now, so you can encourage an abundant mentality.

Conclusion

Building wealth encompasses earning, spending, saving, growing, and contributing. The interplay of these five keys will guide you towards financial prosperity.

Remember that building wealth is not a sprint; it’s a marathon. Embrace the journey and celebrate the progress you make along the way. Stay persistent, even in the face of challenges, and continually educate yourself about financial matters.

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