How to Build Wealth

  • May 19, 2020

Do you know how to build wealth? I'm no self-proclaimed financial guru; I'll leave that to the experts. But what I am, is someone who deals in black and white with a sprinkle of common sense.

If you're curious as to how to build wealth, I am going to give you an all too common scenario, one perhaps you will relate to. Do with the information what you will.

But I believe you will see the common sense sprinkled on top. My only ask is that you take some with you along the way and apply it to your life. 

How to Build Wealth

  • Do you know how to build wealth? Many Americans are living paycheck to paycheck and that's no way to live. It's stressful and in times like these, it's downright scary. There are the traditional ways to go about making money. But what if there was a different way to teach you how to build wealth? 

1. A Riddle

Who do you think is more wealthy: a person with $1M in the bank or $100,000 in their mattress (and a few other places)? In essence, what does wealth mean to you?

For some it isn't about the amount of money you have. Money doesn't buy happiness. At least that's what they say. I'd like to try it out and see haha. 

In fact, our trading service is here to show you how to build wealth by teaching you how to trade. As a result, you'll have a skill that lasts a lifetime.

2. Johnny Jackpot: A Familiar Story

Johnny hit the jackpot, so to say with a windfall inheritance of $1M and promptly went out and bought his dream car, house, and a few other toys. You may think he is wealthy with have $1M in the bank, but appearances can be deceiving. 

First things first, I think we need to define the difference between money and wealth. Money is just that, a currency defined in dollars, franks, euros, etc.

The purpose is the same; it allows you to buy things. Think of wealth like this: If you quit your job, how many days can you live before the money runs out? 

We would tend to think that Johnny with $1M in the bank would be fine for a while. But what we don't know is that he has a $4,000 a month child support payments, a $10,000 mortgage, $3,000 a month car payment and monthly living expenses of about $6,000; that huge property is expensive to live in and maintain.

In total, he's forking out about $23,000 a month in living expenses. For good measure, let's just round that up to $25,000 as wining and dining the ladies isn't cheap.

It would take approximately 40 months for Johnny to blow through his $1M; essentially just over three years.

I'm going to point out the elephant in the room here; Johnny inherited this money, he didn't have a lick of it in investments. Could mean he doesn't know how to build wealth. More on that later. 

How to Build Wealth

3. Savings Sandra

Let's look at Sandra, a 37-year-old hairstylist with $100,000 in her mattress. As much as I hate recommending you put your money in the bank, it's much safer there than in your mattress. Anyways, I digress. 

Not only does Sandra have $100,000 in her mattress, she's smart. At the age of 25, she bought her first home in which she promptly fixed up and flipped.

She's done that a few times and is now living mortgage-free. Other than a monthly cell phone bill, utility bills and a modest car bill which adds up to about $1500 a month, she is essentially debt-free.

So if everything went sideways for Sandra - which of course I hope it doesn't, and she has to stop working, how long would it be before her money would run out?

If she were to only touch the money in her mattress, simple math tells us she's got about 67 months before her money runs out or 5.5 years.

But Sandra being Sandra, has another card up her sleeve. On the sage advice of her wealthy aunt, at the age of 17, she started investing a portion of her monthly income ($300) into an Index Fund. 

It seems Sandra knows a little something about how to build wealth. Maybe she's in our trade room everyday. 

How much wealth do you think she has accumulated now? To answer that question, I need to tell you about the 8th wonder of the world.

4. The 8th Wonder of the World

Do you want to know how to build wealth? Compound Interest. Let's take our two friends Johnny and Sandra.

Like I mentioned above, Sandra had the wherewithal to start investing at age 19. Yet, she only kept at it for eight years and stopped adding to the pot at the age of 27. 

In total, shes saved $28,800. This doesn't seem like a lot of money does it? But, her money then compounded at a rate of 10% a year (which is roughly the historic return of the US stock market over the last century).

At the age of 37, she would have had $129, 207 dollars accumulated from a measly $28,800.

However, that's not even the best part. By the time Sandra retires at 65, she has a shocking: $1,863,287. In other words, that modest investment of $28,800 has grown to almost two million bucks!!! Pretty impressive, huh?

That' s the awesome power of compounding. Over time this force can turn a modest sum of money into massive wealth. 

What Is the Fastest Way to Build Wealth?

  • When it comes to building wealth, usually we're in a rush to get there. As a result, what's the fastest way to go about it? Is it even plausible to think you know how to build wealth quick? Many times those get rich schemes don't work out well. Sometimes, things like a budget, saving, learning how to trade are the best way to build wealth. Remember, slow and steady win the race.
How to Build Wealth

1. What If Time Is Not on My Side?

Now don't feel deflated if you didn't get the early start Sandra did. Even someone who didn't start until the age of 27- investing the same amount each month ($300), and didn't stop will still have a nest egg of $1,589,733! 

Now even though this is still a hefty sum, it is still $273,554 less than Sandra. Furthermore, he had to invest almost five times more money - $140,000, than the $28,000 Sandra invested. And he had to continue investing until the age of 65. 

Which brings me to my next point...

They say the best time to plant a tree was 20 years ago; the second-best time is now! So regardless of where you are at financially, START INVESTING NOW TO BUILD WEALTH. Pay yourself first.

As you learn how to build wealth make sure to take our free online trading courses

2. Some Golden Nuggets of Wisdom on How to Build Wealth

  • The stock market is the single best place to compound money over many years.
  • The largest danger of the stock market isn't a correction or a crash; it's being out of the market. 
  • Sitting on the sidelines even for a short period of time may be the costliest mistake of all
  • "The best opportunities come in times of maximum pessimism" -John Templeton (btw he made a fortune buying cheap stocks in the midst of WWII)
  • What matters most isn't where the economy is right now but where it's headed. When it seems like the sky is falling, the pendulum eventually swings in the other direction. In fact, EVERY. SINGLE. BEAR MARKET in US history has been followed by a bull market, WITHOUT EXCEPTION!
  • One common misconception about money is that if your income is high enough, you'll become financially free. No matter what your income is, if your expenses outpace your income, financial freedom will NOT be a reality for you. Just look to Johnny for a reminder.

3. Advice on How to Build Wealth...Where Should You Get It?

From the best.

Think of it like this: If you wanted to be the best race car driver in the world, would you go to your grandmother (apologies in advance grandma) for driving lessons?

Nope, I didn't think so. So why is it that so many of us hand over our hard-earned dollars to someone else to invest without question?

Like I mentioned above, I am not a financial advisor, nor do I aspire to be. But one thing I do know is that one of the largest expense in our life is taxes.

If you have money in an actively managed fund, over time, you could be losing up to two-thirds of your profits to fees and another 30% to taxes. 

Please read the book "Unshakable" and "Money, Master The Game" by Tony Robbins. He airs the dirty laundry on the actively managed funds and is a strong supporter of Index funds. 

In an analysis of 203 actively managed mutual funds, with at least $100 million, 96% of them failed to add any value over 15 years. 

Here's another way to put this in perspective: an actively managed fund that charges you 3% a year is 60 times more expensive than an index fund that charges you 0.05%!

It's totally up to you what you do with your money and investments, but you might want to keep what I wrote above in mind if you're learning how to build wealth.

How to Find Extra Money Each Month to Invest?

Finding extra money doesn't have to be complicated. In fact, it just takes a bit of common sense.

  1. Call your phone/internet/cable provider and ask for a discount. I ended up getting my internet reduced from $120/month to $60/month as I was a "student." Taking an online course counts as being a student, try it; it worked for me! Savings For The Year = $720
  2. I called my cell phone provider and threatened to take my business elsewhere. My threats weren't listened to, so I took my $120 cell phone bill to another company, which only charges me $40 a month. Savings For The Year = $960 
  3. Cutting my own hair. Gasp. This was done more on a whim as I was pissed off that I couldn't just get my hair cut at the salon. No, I had to pay for the dry and style at a tidy sum of $55. Me being me, bought a pair of scissors and went to town. I'd probably get my hair cut every three months, so that's a savings of $220.
  4. I used to have an issue with buying books, like way too many books. At an average price of $25 each, it can add up quickly even with one a week. Now I go to thrift stores and pay a couple of dollars. And I have an impressive library! Savings = $1200 a year.

I think you get my point. The reality is this: You know where you're wasting money, you don't need me to tell you where that is.

Final Thoughts

You're never going to earn your way to financial freedom. The real route on how to build wealth and riches is to set aside a portion of your monthly income and invest it.

Let compounding work for you. That my friends is how you become wealthy while you sleep; that's how you achieve true financial freedom. 

Moral of the story: Be like Sandra, don't be like Johnny.

I'll leave you with these words of wisdom from Russian-American writer and philosopher, Ayn Rand

"Money is only a tool. 

It will take you wherever you wish,

but it will not replace you as the driver."

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