Three Levers of Wealth
I believe the formula to wealth is ridiculously simple.
Executing that formula is ridiculously hard.
When I turned 40, I came to the realization that I was behind in the retirement game. This can be troubling for anyone, but a major reality check for someone who wants to retire early :)
The Wealth Formula
First a confession.
When I get into something new, I go all in. I'm talking all. in.
The moment I realize I was behind on my "retire early" plan, I decided to do something about it. So I jumped in and started devouring every investing and financial resource on the planet.
That led me to a book by Daniel Pronk, called the Fundamentals of Investing. Within the first few pages, he lays out the wealth formula:
- Have an income
- Spend less than you make
- Invest the difference
Hey, I told you it was simple. But just because something is simple to understand doesn't mean its easy to do.
Have an Income
This may seem obvious, but there's many paths to income. I'm one of those folks who always has ideas. I Recently cofounded Yieldrapp.com - a stock research platform. I have a lot of fun working on it, but the truth is (at least right now) it's costing more than it's making.
Side hustles have a lot of potential, unfortunately, only a few survive.
The biggest financial mover in my life has been scaling up my career as a designer.
My first design gig made $40k. The second made $65k. The third made $125k.
It took me several years to get to my current role. Over a decade. The point isn't the dollar amount; it's being able to make money with a skill.
If you have a skill, get scrappy and go make some money!
And yes, you do have a skill!
Spend Less Than You Make
No matter your current income, you can get ahead by simply spending less than you make. But this is an area few people talk about. It's not sexy. It's the hard part.
It requires discipline and practicing contentment.
It's the whole reason I started this blog. The Empty Cart isn't just a cute metaphor. It's the secret!
When you subscribe to The Empty Cart, I'll do my best to encourage you with reminders to stay on track. I promise!
Minimalism is often seen as the things you give up. That's the cup half empty. The cup half full looks at everything you gain by spending intentionally.
Money you don't spend adds peace of mind, security, and the ability to move into the third wealth lever. Most people never get to this lever. They stay in the cycle of spending every dime they make.
The ultimate wealth driver is next.
Invest the Rest
When I realized I was behind on my retirement journey, I discovered I was missing the most magical wealth lever; investing.
I grew up with awesome parents. We were middle class through and through.
My dad worked hard at a tire plant and my mom would drag me from store to store to make sure we used up all the coupons.
They taught me levers 1 and 2. Work hard and spend less.
I didn't realize there was a 3rd lever called investing.
I say investing is magical because it is! Investing is when you own assets and they go to work for you.
Take a company we all know like Visa. Chances are you have a Visa card in your wallet. This is one of the company stocks that I own. While it's never a sure thing, Visa's business has continued to grow and along with it the stock price.
Visa also pays out a dividend. Nothing huge, but every quarter I get a small cut of the cashflow. Visa also has a history of growing their dividend every year.
All of this together (the stock price appreciation, the growing dividend) creates a compound machine. It's often compared to a snowball rolling downhill.
It starts slow but picks up speed and size as it moves.
Eventually, that small dividend payout becomes big enough to purchase a new share completely on its own. There's no hard work required. It's my money (a decision I made years ago to own an asset like Visa) making money for me in the background of my everyday life.
The Wrap Up
If I'm honest, most people will read this and stop at the first lever. They'll see how I scaled my day job to a higher income and think I have something special that they don't.
I can promise you, there is nothing special about me. Sure, there was some luck along the way and parents who instilled old fashion work ethic, but anyone can level up their career.
And the investing snowball can grow even from a small amount if you have more time to let it roll.
I didn't start investing until I was in my 40's. This means I have to contribute A LOT to move the needle. If you are younger than me (and have more time) you can put in less money today and still outpace me in the long run.
There's plenty of wealthy people making $50k a year. They've learned how to master levers 2 and 3.
There's also plenty of people making $150k a year that are poor. They've learned how to swindle all their income away before it gets to lever 2 or 3.
That's the beauty of knowing you have 3 levers to pull. There are many ways to create wealth.
Spend less, live more.
Jeremy