I find that wealth is often misunderstood in our society. When the word is mentioned you probably conjure up images of fancy mansions, fast cars and private jets. But the reality is that wealth is something completely different.
And if we look at the way the world is today… we all need to build our wealth or face huge consequences personally and as a society.
So What Is Wealth?
The best definition of wealth I’ve seen comes from Robert Kiyosaki…
“Wealth is the number of days you can survive
without working while also maintaining your lifestyle.”
without working while also maintaining your lifestyle.”
What this means is you have created residual (or passive) income sources that continue to pay you after the work is done. You’ve accumulated assets that give you a steady paycheck whether you’re working or not.
For example if you have $10,000 a month in expenses but have $11,000 per month in residual income then you’re wealthy. However if you have $2,000 per month in expenses and $3,000 in residual income you’re also wealthy because your income is no longer dependant on how many hours you work.
The Key Distinction Between Wealthy And Rich
A lot of people dream about being “rich” and it means various things to different people. In my mind rich indicates fancy mansions and fast cars since the term is often used in those contexts. However a lot of people currently look “rich” due to their lifestyle but are leveraged to the hilt with debt.
I prefer to focus on building my wealth as this is what creates my freedom. I currently have 20% of my income coming from residual income sources and this will continue to grow over the next few years. By keeping my expenses the same and growing my residual income I will be financially free in 2-3 years if I keep my eye on the ball.
Wealth Is The First Step To Being Truly Rich
Once you have the lifestyle freedom that wealth creates then you can build even more wealth and income.
For instance I could keep my active income business and when combined with my residual income business will have effectively doubled my income. Because my residual income is not dependant on my time I can grow it as large as I desire.
Having a residual income also allows you to invest in other areas and grow your wealth and income even further. You might choose to pay off your mortgage and invest in real estate to grow your assets base. Perhaps starting businesses that provide more residual income might work for you.
How To Build Your Wealth And Residual Income
There are three main paths to building your wealth…
- Business
- Real Estate
- Stock Market
Business is my area of expertise so I’ll focus on that. However here’s a quick word on the other options you have available.
Is Real Estate The Path For You?
Real estate is a very good source of wealth and there is a ton of information available on the subject. The basic idea for building residual income is to buy rental properties where the rental income covers the expenses and you have a net gain each week.
The investors I know seem to be happy with about $50 a week coming in from their properties although this can be increased as well. There is also the benefit of capital gains when it comes to most real estate (although it’s never guaranteed) however this does not create residual income for you.
As you can see at $50 a week you’d need about 20 properties to get $1000 a week in residual income. This is a very simplified view but it gives you some idea of what’s involved in building your property empire.
What About The Stock Market?
I know even less about the stock market so here’s my “take it with a grain of salt” opinion. Residual income from stocks come from company dividends. These dividends usually aren’t that high so you’ll need a lot of stock which you pay for with your own money.
You could also become a stock trader but this is more an active income source. The advantage is that you leverage your time and money by making trades. However since most people lose money when investing in stocks and even professional traders and money managers have a hard time predicting the market this is definitely not an easy way to make a living.
Basically I wouldn’t even consider the stock market for creating residual income. I also think investing your wealth there for the long term can be dangerous. Because the market fluctuates based on human behavior and not the true value of a company it becomes close to gambling.
If you like it (or do it now) then that’s great for you. I would estimate it takes years of experience and a lot of money to become successful with the stock market. Warren Buffett would obviously be a great role model if this is the path you want to choose.
Building Your Wealth Through Business
Business is my vehicle of choice when it comes to residual income and this is what I’ve dedicated over a decade of my life too. I’ve started and run many businesses so hopefully my experience can give you a shortcut of what to look for and what to avoid.
I consider there to be four main approaches to business and will break each one of them down so you can see the options you have available.
The Traditional Bricks And Mortar Business
Starting a traditional bricks and mortar business takes a lot of capital and every month you’re faced with expenses like rent and wages. Many smaller businesses have been pushed out by bigger companies and franchises plus with the ability to price shop and buy online nowadays we’re seeing the traditional business face tough times.
Without going into a lot of detail I don’t recommend this approach to starting a business due to the high start up costs and the limited nature of the model. You have to be very good to create an empire with a traditional business.
The Self-Employed Business
For this I mean any business where you are the main person doing the work and if you walked away the business would probably collapse. This includes professionals like doctors, lawyers, plumbers etc but could also include retailers where you can’t afford to hire staff.
I currently still run my self-employed business and this is where 80% of my income comes from. Because of the way I’ve set it up I can work from home (or anywhere I have a laptop) and it provides a very nice lifestyle. The downside is it doesn’t create a residual income for me and hence it is more like a job than a business.
While it might sound easy to start a business and then hire employees to replace you it’s a lot more complicated in reality. I use outsourcers to do a lot of my work yet the majority of my business relies on my experience and relationships. This is why most self-employment businesses end up trapping the owner and they can find themselves working longer hours for less pay than the job they once left for “freedom.”
The benefit of selling your time for money is that you can make more income faster than creating products to sell. However I would never set out to create another self-employed business. I would focus on creating a residual income business and move away from trading my time for money as quickly as possible.
The Internet Marketing Business
There is much hype when it comes to the wonders of internet marketing and how easy it is to start a business. I’ve been working in the internet marketing industry for over 12 years and this is the focus of my self-employment business… I help online business owners increase their sales through strategy, copywriting and conversion.
There is a bit of myth on the internet that you can easily create a residual income business from scratch. The reality is that you’re still facing a 90% failure rate and this could even be higher due to the low costs of entry. Yes you can get a website up and launched for cheap but that doesn’t mean you’ll have a profitable business.
I’ve seen (and in most cases done) blogging, info products, affiliate marketing, physical products and the list goes on and on. The reality is very different to what the person selling the high-priced training course would like you to believe. You still have to create a real business and provide a ton of value for your clients.
The Network Marketing Business
Network marketing is also a business model that receives a lot of hype with promises of huge residual incomes. While this is true for a small percentage of the industry you’re still facing the 90% failure rate (or perhaps quitting rate is more appropriate).
When all is said and done the biggest problem in network marketing is actually yourself… are you willing to go out there and do what it takes to make this business successful? The reality is that most people will not train themselves to overcome their fear of rejection.
Those that are willing to go the distance face another problem and that’s meeting new people. Once you’ve talked to everyone in your network you have to go out and start marketing yourself. Unfortunately marketing is not really understood in this industry and can limit the results of even the most committed network marketer.
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