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The Five Pillars Of Wealth Building

https://dariusforoux.com/five-pillars-of-wealth-building/

dariusforoux.com

The Five Pillars Of Wealth Building
I’ve identified five pillars of wealth that support our understanding of effective wealth building. You'll see these concepts everywhere.

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How you can invest in yourself

How you can invest in yourself

The foundation for every personal pursuit in life is to invest in yourself. It can take years. How you can do it:

  • Learn to build something. If you can create something valuable with limited resources, you can create value.
  • Learn a rare and valuable skill.
  • Build a network of people who are doing well in life.
  • Save enough money to live on for at least six months.

A good supply of ideas is the first pillar of wealth building.

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Income generation

Once you have ideas, you want to put your ideas to work. If you do that, you can start creating value. When we create value, we generate income.

During the pandemic for example, most restaurant owners had to focus on other ideas to generate income. Building wealth is not easy. We need a constant supply of ideas.

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Asset investing

It is anything that will increase your wealth without personal labor.

  • Businesses. This is a broad asset class. You can buy dividend-stocks on the market, and then the companies will pay you a share of the profit. You can start your own business. You can buy into other private businesses.
  • Bonds. When you invest in bonds, you collect interest just like your bank is collecting on a mortgage.
  • Books. A good book will generate cash for a long time.

Assets that don't generate cash, but might increase in value.

  • Land. A piece of land generates cash when you rent or lease it.
  • Collectibles such as art or watches.

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Protecting your assets

Once you've acquired some wealth, you want to protect that from external factors.

You want to keep your assets safe from legal institutions and ensure you don't pay more tax than required. You will have lawyers and accountants to take care of these items.

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Capital allocation

At some point, you've acquired enough wealth so that you're only moving around your resources. You will generate value and cash by selling one stock and buying another, or selling land and buying a cash-generating asset.

Successful investors put their wealth to work so that it will not only benefit themselves, but will have an impact on the economy, jobs, and lives of other people.

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SIMILAR ARTICLES & IDEAS:

Create a Spending Plan

The wealthy see money as a resource and a tool to help them build wealth over time.

Know your income, your expenses, how much is earmarked for additional expenses and how much for other f...

Spend Wisely

Learn how to spend on the things that matter to you. 

Consider your values and priorities when you draw up your spending plan. If going on vacation or giving to a charity is important to you, include those items in your spending plan.

Pay Off High-Interest Debt

Pay down your high-interest debt as quickly as possible. 

While some types of low-interest or tax-deductible debt can help you along the way, high-interest debt rarely has a good purpose.

4 more ideas

To accumulate wealth...

  • You need to make it. You need a long-term source of income that's enough to cover your basics.
  • You need to save it. You need t...

Making Enough Earned Money

Earned income comes from what you "do for a living."

  • Consider what you enjoy as you will be more likely to succeed financially.
  • Consider what you're good at and see how you can use those talents to earn a living.
  • Consider what will meet your financial expectations.
  • Consider how to get there. Determine the education requirements, etc.

Evaluate your income situation annually.

Saving Enough of It

To ensure that you save enough money, your wants should not exceed your budget.

  • Track your spending for at least a month.
  • Trim the fat. Break down your wants and needs.
  • Adjust according to your changing needs.
  • Build your cushion. Aim to save around three to six months' worth of living expenses.
  • Contribute to a retirement fund and try to get the maximum your employer is matching.

Naval Ravikant

"Wealth is having assets that earn while you sleep. Money is how we transfer time and wealth."

Naval Ravikant

Making Money Vs Creating Wealth

Most jobs are purely money generation, and have little to do with wealth. Generating wealth is an entire different ball game than earning money, which you can easily do by learning a few in-demand skills, and taking up a job or freelance work.

If you desire to earn money, and not create wealth, a consulting or a freelance job earns more than a regular job, provided your skills are valuable enough to get full time work.

Generating Wealth Is A Long Shot

  • Creating wealth means a lot of expenses initially, and is a risky proposition.
  • A decent number of startups go bust, with the founders going bankrupt. They would have earned more just doing consulting or freelance work, but they chose to ‘burn’ money instead, with a ‘long shot’ hope to create tons of wealth in the coming years.
  • Working full time as a founder of a company is like being over-indexed in just one asset, exposed to a significant downside, with a low probability of an upside.