Getting debt under control is the first step in building wealth. It takes more than getting out of personal debt. Building wealth takes investing to the max and maybe even starting a business to help create the wealth wanted.
https://youngandtheinvested.com/how-to-build-wealth/ By Riley Adams, CPA
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Hello, I'm your host, Mr. Chuck, a retired accountant turn truck driver, I reduce my debt in a relatively short period of time, debt reduction, to achieve financial freedom takes commitment, confidence, determination. building wealth. Getting debt under control is the first step to building wealth, it takes more than just getting out of personal debt. Building Wealth takes investing to the maximum, and maybe even starting a business to help create your the wealth that you're really wanting more about starting a business later. But this podcast is focused on those struggling to get out of debt. But over time, those who struggling to get out of debt will eventually get their debt under control. And then the next step is to start building their wealth. So that's what we're going to talk about. From the basics. There are five levels of wealth. And this is from in my show notes, I have a link, Tony robbins.com, building wealth, and he has five levels of wealth. building wealth on a large scale is a massive goal. And it doesn't need to feel impossible, you're not dreaming big enough to bring your vision to life to take those big dreams, and break them down into smaller, achievable goals, using the five levels of well. So if you're dreaming big, maybe you want to own 100 foot yacht, maybe you want a big mansion, maybe you just want to make a million dollars, whatever your goals are, maybe you just want to have enough money to pass on to the next generation. So they don't have to struggle as much as you did. But this is how we're going to do it. And there's five levels. And level one is financial stability means that you're not only able to pay your monthly bills, but also have an emergency fund of at least three months a basic living expenses, you're saving more than you spend and working to become debt free. That should be where everybody that's listening to this podcast, is you're somewhere in that range. If you're not quite there yet, you're working to get there. And if you have an emergency fund, and he just got started, maybe$500, you need to over time, just gradually increase it. So you want to make it five 750, then 1000. And eventually, you'll have enough to pay at least three months of your living expenses. If you have a budget, you'll be able to look at your monthly budget and know, okay, if my monthly budget is$4,500 a month, meaning I gotta pay my rent, my mortgage, car payments, groceries, all that kind of stuff. And if that's$4,500, that times three is what you need to have to be financially stable. So we're all working towards that. Maybe some of you have already achieved it. And you're wondering now what to do. This step two is financial strategy. This is when you begin to think about investments, yes, it's time to start investing this early in the process. The earlier you begin leveraging the power of compounding, the more money you will have in the long term. And I have another article, my show notes, a link that's talking about compounding what it is how it works, and they give you examples. And we're gonna cover that later. This third level is financial security. It's about confidence. You have enough save invested that if you lose your job, or an economic winner occurs, you can get through it and come out on the other side just as financially secure. So if there's down, turn in the economy and you lose your job. And maybe you have to get a part time job or some other job, where you're not making enough money, enough money enough, you know what you're used to, to pay your bills. What we're saying here is your financial security is that you can live six months to a year, and still have enough money. Once you get through it and get back into your main career goal, again, that you'll lease or remain financially secure, that you don't have anything to worry about. That's step three. Number four, financial freedom means you're able not only to survive hard times, but to do what you want, when you want, no matter what your money machine is humming along nicely. This is when you can buy that nice car, or expensive vacation, and not before. So what you're saying here, is you got to build up your finances before you start spending your money. I saw an article where it says that wealthy people have a mortgage an average of 10 and a half years that they don't really spend their money on their personal resonance. They're using the money to work for them. He got to make your money work for you, and going on an expensive vacation, or buying an expensive car, or buying a mansion that you really can't afford yet. Because time you factor in utilities, real estate taxes, insurance, and maybe some housekeeping, you're going to be stretched. So don't do it. But once you reach financial freedom, you'll be there. So your money machine is humming along nicely. I'm not sure what that means. That your money machine would be your investments or maybe a business that you may have. Maybe you have a business that you do on the side, and then you still work a full time job. Because you love your career and you don't want to give it up that you came across a business opportunity that you invested in. To take advantage of making your money work for you. Then we have number five financial abundance is the ultimate dream. He have so much money and give it away, give him back exactly what you must do. Money itself isn't well, it's a tool you can use to find true fulfillment and other ways. It may take a lifetime to achieve financial abundance but big but it can be done. Remember what Tony says, There is a powerful driving force inside every human being that once unleash can make any vision, dream or desire a reality. Find your driving force and use it that how to do that. How are you going to build your wealth and keep it if you just started the process of building wealth you reach financial freedom. You're benefit from strategies that help you adjust your mindset and not only create wealth to keep it understand that building wealth is more than just money. The first step in understanding how to build wealth is realizing that abundance is about far more than just money. That makes the distinction between monetary wealth and true wealth. While the former suckers your purchasing power, only the latter can secure genuine, lasting happiness. Money is merely a vehicle to carry to financial freedom. Then with financial freedom in place, it can become able to pursue your dreams and find lasting fulfillment. Align your approach to building wealth with your purchase. Purpose, and this is the second step one wealth creating. Once you get in touch with your value systems, you can align the spending priorities or coordinate and get on the right path to building wealth. This includes building high income skills, incorporate those priorities and to a feasible budget for living below your means and track your spending to hold yourself accountable. Once you develop a baseline of financial freedom you can put your wealth to work by investing it why wisely, don't trade time for money. Time is a commodity that we cannot get back, we can work less and make more. And don't get overly stressed. Instead of trading time for money, focus on developing wealth building strategies that involve passive income. Meaning, it's your creating income by not having to work for it, such as investing passive incomes from starting a business or creating a team that earns you money when, even when you're not working. And also can be the product of Smart Investing. And we're going to talk more about the business side of this a lie, you think you're never gonna have your own business, I've had my own business, that's a lot of work. I was in the service industry. So if I didn't work, I didn't make any money. So we're going to talk about that. And then focus on investing. Member compounding is your friend, the the more you invest or earlier, invest, the longer you invest, the more you're gonna have to overcome emotional spending to retain your wealth. Don't spend money because of emotions. Don't go out and spend because you're feeling depressed, don't go out and spend because something bad happened in your life. keep that under control, and work on your own personal growth, how can you improve yourself and become a better overall person, just having a lot of money doesn't make you a good person. So that's the basics of wealth. You got the five levels, financial stability, financial strategy, financial security, financial freedom, financial abundance, I'm probably somewhere between financial security and financial freedom, I can retire or quit working and still be able to pay all my bills, but may not be able to do everything I want to do. So my next level would be financial freedom, I probably could survive hard time for a long period of time. I wouldn't say my money machine is humming along nicely, but is not doing that bad. Problem is if I have to start using that money, my money machine will go away in a hurry. So I'm kind of in the borderline, I'm definitely don't have abundance. So let's talk about compound. Why is that important? Compounding is important, especially for those of you trying to get out of debt. This is why I recommend you continue putting money and your retirement account through work. Or if you don't have one through work, he continue putting money into an IRA. Even though you're struggling, they pay off us credit cards, and they get out of debt. You still need to keep putting even a little bit on a regular basis, and to a retirement account. Because we're thinking the big picture where you're thinking, what am I gonna do when I'm 70 years old, and how much money I'm gonna have to live on. You got to figure everything's gonna cost four times as much if not more, instead of paying $25,000 for a basic beater car, you're going to be paying $100,000 for a basic beater car, because it's called inflation. So how do we offset it? Compounding for those of you who have a lot of debt is like paying interest. But in reverse. When you charge money on a credit card, they're gonna charge you interest, let's say 20%. So 20% Every month is gonna go to the lender. And that's how they're using their money to make money is that they're collecting net percentage from everybody they lend money to every month. So once you get your debt under control, in being under control means you recognize you have a debt problem. You have a debt reduction plan in place and You have a budget in place, and you're working on it. So you got your IRA or your 401k through work. And you want to continue making contributions, no matter what. Because compounding returns is your secret superpower to building your wealth. And this is basically what Warren Buffett has done. And he breaks it down into the simplest, basics, breaks down into three components. Find an exceptional business that can compete over time, paying only a fair or discounted price for the investment. And employing only quality managers who deliver sustainable industry leading returns. Okay, well, the average person can't do those. Well, you can do too, you can find the investment that can compete over time. And you can pay a fair discounted price for Ben unless you own a substantial percentage of the stock. And he usually owns 60, or 90%. And he is on the board of directors. So he can make sure that the quality managers are in place to make sure that business stays profitable. That's what Warren Buffett's doing. And compounding has made him a fortune. But he's not spending his fortune, his wealth on his home, he still lives in the same home he bought 30 or 40 years ago, it's probably been paid off for 40 years, 30 years. He's using his money, and investments. So he's using his money to make more money. And it's growing and compounding over time. So if you have $1,000, and you get 10%, you have 1100, then you make another 10%, you have a whatever that comes out to 12 110. And on he goes, but he's got to a point he do it in big numbers. So at 10% increases millions of dollars, if not billions of dollars. And this article is young in the investing.com how to build wealth through compounding, and they got all kinds of stuff in here. But if you're gonna be investing in the market, and that's where we're all gonna start, you're gonna investing in the stock market through your retirement plan, you need to remember you have to diversify, ie don't put all your eggs in one basket. If you drop the basket, and you only have one basket and you lose half your eggs, you lose half your money. So you need to have multiple baskets, spread it out and diversify. And this is where you need to have a financial advisor. What's the difference between a financial advisor and a stockbroker? a stockbroker charge you you a commission. Every time you buy stock and sell stock. That's how they make their money. A financial advisor should be a fiduciary. He's gotten to trade your investments for you. Make sure you're in the right investments at the right time. Make sure you're diversified. And make sure you're he's not investing above your risk tolerance. And he is getting that fee based on the value of your portfolio. So let's say his fee is 5%. If you have $10,000, he's gonna get 5% of $10,000 on a quarterly basis, most likely, if you have$100,000, he's gonna get 5% on$100,000. So the better you do and the more you have, the more he's gonna make. He's gonna do the same amount of work, whether you have $10,000 or $100,000 or$2 million. He's gonna do the same thing for all three levels. That's what a financial advisor does. They only do that for investments in the stock market. stock and bond market trades. And that's where you get started to put your money to work. Really, you get started before that, by putting your money into a savings account to have their emergency fund. And then once you have three months emergency fund, then you put the most of that in to a high yield savings. So you earn more interest, that's putting your money to work for you. It's not as much as the stock market. But it's an example of how you put your money to work. Don't let your money set idle, you got to make sure your money is working for you. And that is where having a financial strategy and investment strategies gonna work for you. And if you have a financial advisor, we can set that up, he can help you maintain it, he can make sure you achieve your goals when you need to. My goals is that was to have $300,000 or more when I retire in the stock market and my retirement accounts. I'm not quite there yet, but I'm getting close, probably will achieve the goal by the time they need it. Probably before I need it. So exceed my goal. And I'll be able to live to be 95 years old if I live that long, and not have to worry about income or money. And that's what we're after. And if you have children, you may be your goal is to pass money along to your children, when you are no longer so that they don't have to struggle the way you do that you need to teach your children to do the same thing. Stay out of debt, put your money to work for you. Stay focus don'ts, then because you think you have to don't spend because it's a bad habit. Keep your spending under control. Having money in the stock market is only one way to put your money to work. Another way, you put your money at work once once you get enough. And this would be when you have no debt. You have no credit card debt, you have no auto loans, you can pay cash for cars, you don't have to borrow money to do things, you're fairly well off. You've achieved your debt reduction plan. And maybe you're down to maybe your mortgage is gonna be paid off in the next couple years. And you have two or 300,000 or more in the stock market. Maybe your 401k through work is worth a half a million dollars. Maybe you have some investments not in a retirement plan of maybe another couple $100,000. But you're bored at work, you're tired of doing the same thing. You don't want to go to work no more. Is your investments creating enough income for you to live off of? Probably not yet. But what can you do? Maybe one of your goals may be one of your dreams to start some type of business. Maybe you have a hobby you want to turn into a business. Maybe you see an opportunity of need in your area that's not being met. And you think you could create a business and make a bunch of money. So creating a business is the first step is to identify a need. And if there's a need that you can fulfill, and if it's a need that could be done. That's cost effective, that most everybody can afford. That needs to be replaced. Because it's used up and they have to buy more. That's the best because now you got reoccurring sales going on. And they're coming back because you provide the best service. If you can find a business like that, then you need to go for it. And if you have a couple 100,000 sitting in the stock market, maybe you can sell off some of it and get started. Or maybe you can start small and grow slow. So it doesn't take a lot of your investments. And you can build the business up by reinvesting their profits back into the Business to the point where it's large enough, where you're making a couple 100,000 a year in profit. Remember, you got to pay tax on that. And then he get to the point where you don't have to go to that job you're tired of, maybe you're to the point where you can just, I'm going to quit and stay home, I'll work part time in my business, I'll, I'll make sure it's running smoothly, because you've already got the people in place to run it for you. And then you can start looking for other opportunities. That's what Tesla's done, or Elon Musk, he may, you know, a lot of money, he had money, he made money. And then he looked at what opportunities are out there that I could start a business and capitalize on them. And he decided on electric cars, spaceflight, which I would never done that way, tunneling building tunnels. And I think he's into something else, but I can't remember what it was. And he thinks outside the box, he doesn't think traditionally. And he put a lot of money into it, while he had the money to do it. And he's used other people's money who invested with him. To create this business, let's stick with the electric auto. Not only is he manufacturing the automobile. But he's also manufacturing the battery that powers the automobile. He thought there could be a better way to do it, he thought he could mass produce it in large scale, which he's done. He's built the factories, he's got a couple of at least one in United States, I think, one in China, and that he's building. So he saw a vision, he thought he would he thinks and large scale. And then he does it. You can do the same thing. But you can do it on a smaller scale to get started and gradually build it up. You don't want to jump in, where it takes $3 million to get started. And then you have to borrow two and a half million dollars. And then there's no guarantee of return. Because it's such a unique idea. It may take off and may not may not. So you start small, you test the market out, is see how it's gonna do. You expand your markets, you slowly expand your facilities to you get to the point where you can control it, and put good people in place like Warren Buffett does, to make sure that the it runs smoothly and efficiently. And you make a good profit. That's building wealth. That's how you kind of build wealth for generations. And not everybody can do it. A lot of people may be happy, and jest, and building their investments up to a million to 2 million, where they can live comfortably the rest of their life. If you enjoy this podcast, and thinks somebody else might like it, please refer them to this podcast, reduce that increase wealth on your app. If you can rate and review this podcast, please do so. And I appreciate all the time it takes to do so. I'll be back in one moment with my final thoughts. Maybe you're not ready to start investing yet. Maybe you're not ready to start building your wealth because you can't see the big picture. But if you are in the process of getting your debt under control, there are if you're in the process of creating a budget of getting your personal finances, under control, whatever it is you need to do. You're getting there, you're almost ready to start building the wealth. Because why else will you want to get anything else under control? So the first step is reducing debt. And then if you if that debt is attached to an asset that goes up in value, your home and your mortgage and the more you pay off The mortgage, the more wealth you're gonna have, because the more equity in the house you're gonna have, the larger net worth you're gonna have. So let's start by figuring out what is my net worth. The net worth is bigger is the total market value, like you can sell it for today. Everything you own less, all your liabilities, all the money you owe, no matter what, whether it's student loans, credit cards, mortgages, car loans, personal loans, payday loans, subtract all that from the value of your assets. And that difference is your net worth. Why is that important? You can monitor and see how you're doing by the number of your net worth. So if your net worth is a negative number today, maybe a year from now, it might be zero. And maybe two years from now, it could be$10,000. That's how you measure your financial, how you're doing in your personal finances. So let's get started thinking big thinking about your future? And what are you gonna do? Once all your debt is paid off? Or 90% of your debts paid off? What are you gonna do? How are you going to make your money start working for you? You should start thinking all the time, how can I make my money work for me. So that I, personally, my body physically doesn't have to work with no matter what kind of work if you have to go to work. That's physically working, whether you just work in with your brain, or working with your body to in physical labor, whatever type of work it is you're doing, you're doing something. And if you have to go somewhere to perform that to get paid. That's meaning your money is not working for you. Maybe you don't have any money yet to put the work. But even money in the savings account, making a little bit of interest is working for you at the start. So let's start small. Let's get our debt under control. Let's get our emergency fund built up. And let's start thinking on how am I gonna get my money to work for me instead of me working for my money.