Smart Strategies for Building Wealth Beyond Just Saving
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Chapter 1: Rethinking Financial Wisdom
Many financial experts, like Dave Ramsey, emphasize the importance of being free from student debt. Yet, some voices in the finance community suggest that simply saving a certain percentage of your income and investing another in the stock market is the key to becoming a millionaire in ten years. But is that the whole picture?
In my journey through numerous personal finance books and resources, I mistakenly believed that to amass wealth in the stock market, I needed to be a financial expert. I consumed countless videos, articles, and podcasts aimed at constructing a flawless stock portfolio, achieving returns that exceeded the S&P 500, and reaching financial independence by my early thirties. However, I soon realized that my approach was misguided.
The real challenge for young investors isn't just about achieving better returns; it's the fact that I lacked sufficient capital to make meaningful contributions regularly.
Imagine this scenario: What if I had allocated 80% of my savings to investments? If I had skipped movies and used that money to buy shares of a promising company? Investing $10,000—by downsizing my living situation—yielded only $2,000 in returns, which is hardly life-changing. Most college students don’t even have an extra $2,000 available to invest.
The Most Valuable Financial Insight: Focus on Income Generation
Instead of aiming to emulate Warren Buffett, young adults should prioritize creating income-generating opportunities.
It's essential to develop skills, whether it's graphic design, English tutoring, or learning programming languages like HTML5. The goal is to gain work experience and find ways to monetize your skills. The more expertise you acquire, the more scalable your ventures become, leading to increased earnings and, consequently, more capital to invest.
For instance, through my online writing side hustle, I have the potential to earn five figures this year. In contrast, to generate $8,000 in dividends from a stock portfolio, I would need an unrealistic return of around 80%.
Build Your Income First, Then Invest
In your twenties and thirties, your income should be the foundation—think of it as the cake—while investing acts as the icing. It's crucial to focus on developing scalable income streams or enhancing your earning potential.
Like any new endeavor, mistakes are part of the process. When starting to build online revenue or transitioning to a full-time digital entrepreneur, you'll inevitably face challenges, but these experiences are invaluable for growth.
With perseverance and networking with fellow entrepreneurs, you will learn how to optimize your side business, ultimately increasing your income. I'm no longer consumed by the need to read every finance book available; instead, I'm dedicated to maximizing my earnings through my primary job and online writing endeavors.
Indeed, my corporate position, coupled with my writing side hustle, is paving the way for a third income stream through passive investments.
Achieving Financial Independence and Sustaining Your Income
As my net worth continues to grow, the returns from my passive investments will play an increasingly significant role in my overall financial freedom—though retirement isn't a goal for me at any point.
The key takeaway is the importance of income. Moving forward, I intend to focus on refining my online writing skills and striving for a six-figure income. Coupled with passive investment returns, this income will always surpass the meager earnings I might have if I hadn't prioritized building my money-making machine first.
I used to frequently check my brokerage account; now, I monitor my PayPal and banking statements to ensure my clients are compensating me for my ghostwriting services.
In summary: if you're aiming to build wealth, prioritize developing your income-generating machine.
P.S.: To stay updated with my articles, consider subscribing to my newsletter on Substack. For free personal finance resources, calculators, and more, visit the MOAM reader resource page. Please note that this article is for informational purposes only and should not be taken as financial or legal advice. Always consult a professional before making significant financial decisions.
In the video titled "The 3 MONEY MYTHS That Keep You Poor! (How To Build Wealth)", Jaspreet Singh and Jay Shetty discuss common misconceptions about wealth building and provide actionable strategies for financial success.
Dave Ramsey shares invaluable advice for young individuals aspiring to achieve financial success in his video "Dave Ramsey's Advice For Young People Who Want To Get Rich".