Do These 5 Things To Make Wealth Creation a Certainty, Not a Lottery.
Creating wealth is a process, not an event.
Photo by Steve Sawusch on Unsplash
“Lotteries are a tax on stupid people who can’t do maths“
— Naval Ravikant
If your financial plan relies on hope, you’ve got a lottery ticket, not a financial strategy.
Relying on hope takes many forms:
“I hope this crypto or that NFT takes off”
“I hope my lottery numbers are called out this week”
“I hope Elon tweets about this”
“I hope my boss gives me a raise this year”
How many of these sound familiar?
Buying lottery tickets is fine. Speculating on crypto or NFTs is fine too. But just remember you’re buying hope, not building wealth. You are letting chance control your wealth creation while you take the passenger seat.
You may very well hit it big. Everyone knows someone who knows someone who is a Bitcoin or NFT millionaire. You read stories on social media about these folk. Even a stopped clock is right twice a day.
But a bad decision that yields a good outcome is still a bad decision. And one day, that pattern of decision-making will get you into trouble.
Here are 5 ways you can make your wealth creation a guarantee and not based on a Billionaire tweeting about cryptocurrencies you’ve invested in.
#1 Start With Developing The Most Important Asset To Building Wealth.
“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn. ”
― Alvin Toffler
Your money mindset is the greatest predictor of your wealth.
You can’t become a millionaire with $2 thinking. And you can’t generate wealth with a limited imagination. You can’t be in your life what you can’t first see in your mind.
I hate to be that guy that tells you to think positively or just think and grow rich.
Yuck.
But the stories you tell yourself are the stories you become.
If you think making a lot of money is unethical, wealth will elude you. If you were taught that rich people got rich by chance, then you won’t take the time to learn the processes to build real wealth.
If you want to keep getting what you’re getting, keep thinking what you’re thinking.
But if you want to change your results, you need to change your perceptions. Choice of perception precede choices of action. If you believe a certain idea, you are likely to act in ways to reinforce that belief.
Taking control of your mind means taking control of your life.
The thinking that got you where you are today will not be the thinking that will get you where you need to be tomorrow. Every stage of life requires you to develop a new mindset or ability.
Wealth begins by changing what’s between your ears.
You have to unlearn what you have learned. You have to tell yourself new stories about money. You have to think like most people won’t, so you can live like most people can’t.
#2: Forget About Your Wealth Goals, Focus on Building This Instead.
“You first make your habits and then your habits make you” — Josh Dryden.
Wealth is a process, not an event.
Most people notice the event that wealth creates: flashy cars, big houses, and fancy holidays. But very few understand the process behind creating wealth.
You don’t rise to the level of your financial goals; you fall to the level of your financial systems. And a financial goal without a financial system is simply a financial delusion.
A financial system looks like this:
Setting up automated investment accounts that occur without conscious thought.
Managing your expenses to rise linearly (not exponentially) with income increases.
Ensuring every dollar has a home and purpose. This includes having a budget for fun and travel.
Creating a business system that allows you to detach your time from the value you create.
Building leverage (more on this later).
A well-engineered financial system will reduce the friction between taking thinking and taking action. Building wealth becomes the default through a well-designed system.
A goal allows you to set a direction. A system allows you to make progress.
Keep your eye on the journey, not only the destination.
#3 Be Patient With Results But Impatient With Action.
“The two most powerful warriors are patience and time”
— Leo Tolstoy.
Wealth creation does not happen linearly, but exponentially.
What looks like small, seemingly inconsequential steps, accumulate over time to compound into something big over time.
Saving 10% of your income can feel like nothing. Especially at the start. Starting a business creates more pain than pleasure. But hard choices now create an easier life later.
Be aggressive with increasing your exposure to assets. This includes investing in retirement funds, index funds, real estate, etc. Anything that puts money in your pocket through dividends or appreciation.
Be avoidant with adding liabilities. This includes most personal loans, car loans, and credit card debt. Anything that takes money out of your pocket through interest repayments and depreciation.
Just remember:
When you’re accumulating assets, time is your friend. When you’re accumulating liabilities, time is your enemy. Compound interest works both ways.
#4 Understand This One Mathematical Rule
We all know about compound interest.
But very few understand the threshold at which compound interest starts to work. That number is $100,000 net worth.
Not by magic but through mathematics.
Before $100,000, most of the increase in your net worth is done by your savings rate. Compound interest has a negligible impact on increasing your net worth.
After $100,000, compound interest starts to do most of the heavy lifting. Each subsequent $100k milestone gets easier and faster to reach. Your wealth snowball is gaining momentum.
On average, it will take you longer to get from $0 — $100,000 than it would for you to get from $600k to $1,000,000. This assumes you maintain the same level of savings and the same level of investment return.
Image from Four Pillar Freedom
“Notice in the chart above that it takes 7–8 years to save the first $100k no matter what annual interest rate your savings grows at. This is because the amount you save matters far more than your investment returns when you’re just starting out,” writes Four Pillar Freedom.
As Charlie Munger said, “getting the first $100k is a b*tch, but you gotta do it. I don’t care what you have to do — if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.”
Photo by LinkedIn Sales Solutions on Unsplash
#5 Don’t Build Your Resume, Build Your Leverage Instead.
You will not get rich renting out your time.
Most jobs keep you in a cycle of working poverty.
Wealth is not built by the hour but by the amount of leverage, you have.
Do the maths. You can only get paid for a maximum of 24 hours a day by renting out your time. Once you factor in sleep, recreation, and social life, you could work productivity for maybe 12 hours a day without burning out.
A job might give you a raise of 10% a year if you’re lucky. But if you’ve got the right leverage, you can grow at 100% or 1000% a year (like I have on Medium).
If you want to make a million dollars, you’ve got to impact a million people. Leverage gives you scale. And scale is what makes you wealthy.
There is no guarantee of making money through leverage, but there is no real cap on how much you could make either. You are sacrificing the average for the exponential.
A job guarantees that you will make money, but there is a real cap on how much you can make a year. You are sacrificing the variance for the mean. You remain average.
Therefore, your level of wealth will not be determined by your hourly rate but by your level of leverage.
What does leverage look like?
Capital: How much money do you already have to work for you?
Labour: How many people do you have working for you?
Internet: How many people do your work impact?
Capital and labour are old-school forms of leverage. You need someone to give you lots of money or have a large team of people working for you. Both are hard to get as a young person and even more difficult to manage.
The internet has democratized leverage for the average person. You can create leverage through blogs, podcasts and code. You don’t need anyone’s permission or authority to be an online content creator. Just start doing it.
Internet leverage allows me to make scalable sources of income with a limited downside (i.e the time it took to write the article) but unlimited upside.
I could never make a negative income or get negative views on an article. But a million people could view my work and I’ll get paid for it. Welcome to the internet leverage.
If you aren’t building leverage online you’re missing out on creating scalable sources of wealth that are detached from your time. If you don’t control your leverage, you don’t control your wealth either.
Summary:
If it isn’t already clear, real wealth creation relies on creating control, opportunity and leverage.
If you’re relying on a boss, lottery ticket or cryptocurrency to make your wealth, you are mortgaging your future on hope.
To recap, the 5-steps to creating wealth:
Upgrade your money mindset. Unlearn, relearn, and learn new skills.
Build a well-designed financial system that aligns with your goals.
Understand that compound interest is your greatest weapon.
But realize that the iron laws of mathematics still apply to you.
Forget your hourly rate. Build your leverage through the internet.
Use these principles on your journey to building wealth. Good luck.
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