Building your wealth: a model

TL;DR: Income -> Tax -> Investments -> Expenditures -> Cash back/Savings

When people rely just on some get-rich-quick investment to build their wealth, or when people think that all it takes to become wealthy is cutting down expenses, they are deluding themselves.

Wealth is about how financially sustainable your situation is, and has to be calculated holistically. There are 5 major pieces we’ll look at. When you analyze your own financial situation, spend some time to think: where could I improve? Where would my time be most well spent? How do I want my individual wealth chain to look in 5, 10 years, or at retirement?

Income: Not investment income, but I’m talking the traditional exchange of time for money when you work for someone else. Unless you’ve inherited wealth, this is where almost all of us start. This piece just all comes down to hard work, education, and casting a wide net to find a job that you enjoy and meets your financial goals.

Tax: Although taxes inevitably exist in every piece of the wealth chain, I’ve put it right after income (since income tax is the most significant tax most of us pay). However, it’s worth thinking about it – taxes are complicated enough that there seems to always be something. Did you max out your 401k/IRAs? Are you showing capital losses optimally? Are you depreciating your real estate investments correctly?

Investment: Whether you have all your cash in a savings account, bonds, stocks, private equity, cryptocurrency, etc… think about your returns. Are you targeting the returns you expected? How sustainable and passive is your method of investing?

Expenditures: Most of us need to spend way less than what we spend. What do you spend on that you could cut down on? The easiest things to look at are subscriptions you hardly use. But look through your Personal Capital profile and click on banking-> cash flow -> expenditures (after linking all your accounts) and ask yourself: what’s my average monthly spend? What do I don’t need? What are the big expenditures I don’t really need, and how could I substitute that for something with more bang for the buck?

Cash Back/Savings: Whether it’s credit cards, coupons, online web portals, etc… It’d be good to spend a bit of time researching (articles on this blog have a lot of advice, starting with this!) There are really great passive ways to cut down real expenditure by a lot. For example, I average around 5% back on all my expenditures, which can add to up to a lot annually.

Spend some time to think about all this. Think about where your time is best spent, if at all on this wealth problem. Like your health, giving your wealth a once-in-a-while checkup is highly recommended.

Happy Optimizing,

TheJKW