A 2 Step Formula to Building Wealth
I like to measure wealth in time, not dollars and my time is by far what I value the most in my life. This is why growing and maintaining wealth is so important to me and it should be to you too.
My good friend and mentor Jason Stapleton always told me that the secret to becoming wealthy was a simple two-step process. 1) Spend less than you make and 2) invest what you have left in something that you know. Believe it or not, but it really is that simple, unfortunately, it’s not that easy for most people to follow through with.
It’s never easy to dig yourself out of a financial hole, but it’s certainly doable. The problem is that many people see the solution as making more money, but there are a few problems that go along with that. First and foremost I’m a firm believer in that it’s EASY to make more money. Just work more hours at your current job or pick up hours at another job. Now obviously, some of you reading this may be in locations where that’s easier said than done, but for the most part, don’t tell me that there’s not a local fast food restaurant that’s hiring. And if that’s not your thing, in this time and age we’re blessed with the ability to find more flexible solutions such as being an uber driver where you can create your own schedule. The problem with simply making more money is that it requires time and if the amount that you make is determined by how much time you put into it, then you’re not actually becoming wealthy, rather you’re becoming rick aka just working from check to check.
Another issue that simply working more hours doesn’t solve is the lack of financial education & financial responsibility that one has. All that making more money does is highlight the flaws that you already have. Therefore if you were financially irresponsible when you didn’t have any money then those habits will continue once you do have more money. The only difference is that you’ll most likely become even more reckless because you now have a bigger cushion keeping you in that never-ending cycle of making money but not building wealth.
In my opinion, the first step to developing wealth starts with spending less and a great exercise to discover how this can be done is something called the “latte factor.” You can read more about it in David Bach’s book titled “The Latte Factor” or in his “The Automatic Millionaire” but essentially what it entails is keeping track of all of your expenses throughout a set period of time & figuring out what you can cut out or replace for cheaper. This is an experiment I do at least once a year for myself and it helps keep me on track financially and grounded mentally as there is always something I can improve upon. For example, this past year I discovered that I was spending over $2,000 a year on Gatorade, Baby Bell cheese & Midnight Milky Way bars (Please don’t judge me lol). Prior to that my main wasteful expense was the amount of money I spent on news subscription services & mastermind groups (that I’d never participated in) for my trading & investing business.
Controlling your expenses will allow you to free up your money without taking up any more of your time and once you have some extra funds (that you won’t be wasting on Gatorade, cheese & candy bars) you can now allow that surplus to work for you by accelerating its growth through investments. I like to look at investments as being like planting a garden. At first, it’s going to feel like you’re doing a lot of work for very little return but trust me, things are happening just beneath the ground or behind the scenes. If you’re consistent with your investment strategy eventually you’ll start to see a return and you’ll begin to reap the fruits of your labor. The coolest part is that as your investments grow, your returns will become larger without you needing to do any extra work thanks to the power of compounding. Eventually, you can even get to the point where your returns become so large that you can now change other aspects of your life such as cutting down the hours in which you work or just being able to do more (such as going on vacations or making new purchases) without needing to work more.
I like to measure wealth in time, not dollars and my time is by far what I value the most in my life. This is why growing and maintaining wealth is so important to me and it should be to you too.
In this article, I wrote about how to become wealthy, but what’s more important than becoming wealthy is your ability to stay wealthy. For more on that subject, please check out the video below.
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