Table of Contents
- Introduction
- Live Below Your Means
- Calculate Your Net Income
- Downsize Your Lifestyle
- The 80/20 Rule
- Invest Early and Often
- Harness the Power of Compounding
- Make Investing a Habit
- Automate Your Investments
- Continually Increase Your Income
- Growth Mindset and Skills
- Set Income Growth Goals
- Identify Raise Opportunities
- Minimize Taxes
- Tax Advantaged Accounts
- Realizing Gains and Losses
- Relocating
- Manage Risk
- Asset Allocation
- Insurance
- Avoid Speculation
- Build Multiple Wealth Vehicles
- Diversify Your Assets
- Layer Wealth Building Strategies
- Conclusion
- Recap Main Points
- Inspiring Wealth Building Example
- Take Action
Introduction
It's alarming how few people ever attain true financial independence and wealth building freedom in their lifetimes. Over 60% of Americans live paycheck to paycheck without substantial savings to cover emergencies, investments, or retirement.
Most people know basics like spending less than you earn and investing for the long run. But those who manage to actually build life-changing wealth follow unwritten rules that set them apart.
There are overlooked principles of being an intentional wealth builder that determines who gets rich and who struggles. Adopt the right money mindsets and habits early on, and accumulate assets no matter what your income is.
This comprehensive guide reveals the unwritten rules of being a successful wealth builder that will keep you progressing in the right direction. Master these and you dramatically increase your odds of building long-term, sustainable wealth.
Live Below Your Means
The first rule of building wealth is basic - consistently spend less than what you earn. But the key is having systems and habits in place to make this possible long-term, not just in spurts.
Calculate Your True Net Income
You must have clarity on your full financial picture and actual net income after taxes and expenses. This is the baseline amount you have to work with in order to live below your means.
Be meticulous in tracking your income, taxes owed, housing costs, debt payments, transportation, food, entertainment, etc. Calculate this on a monthly and yearly basis to understand your cash flow.
Having awareness of where every dollar goes is essential to mastering wealth building. Once you identify waste and excess spending, redirect those amounts into productive assets.
Downsize Your Lifestyle
The next step is aggressively minimizing lifestyle inflation and discretionary spending more than what average people do.
Aim for extreme frugality in the beginning wealth building stages - downsize housing, drive used cars, avoid luxury clothing brands, limit vacations and entertainment.
Do a spending fast for 30 days tracking every dollar spent. Then figure out what adds value versus empty calories that have little long term benefit.
The 80/20 Rule
Studies show around 80% of wealth comes from only 20% of your spending choices and habits. Pareto's Principle applies to personal finance more than most realize.
Be obsessive over that 20% which includes:
- Increasing income
- Investing savings
- Reducing taxes
- Purchasing appreciating assets
De-emphasize the other 80% unimportant spending on consumer goods and lifestyle inflation.
Getting the 20% right accelerates wealth building faster than any other factor according to research.
Invest Early and Often
Investing savings in order to earn compound growth is how money is put to work for you. But most people either don't invest at all, or only do so later in life missing out on precious time.
Harness the Power of Compounding
Thanks to the exponential power of compounding returns and reinvesting dividend yields - the earlier you start investing the better.
Every year delayed can mean over 100% less money in the long run. Investing aggressively in your 20s and 30s is the easiest way to end up with millions more down the road. Patience and persistence pays off enormously.
Use compound interest calculators to run scenarios comparing investing early versus later in life. The difference is shocking.
Make Investing a Habit
Being a wealth builder means making investing a habit started as early as possible, not a one off event. Figure out how to invest consistently even with small amounts like $50-100 per month.
Automate transfers into investment accounts so contributions happen like clockwork before you have a chance to touch the money.
Automate Your Investments
Speaking of automation set up auto-deposits from every paycheck into low fee index funds or ETFs. ROBO investing apps make this seamless.
This takes emotion and procrastination out of the equation so your money works hard for you immediately in the stock market.
Investment calculators show even $10,000 invested annually at 8% returns turns into over $1.1 million in 30 years. The power of compounding and regular contributions adds up enormously for those with patience.
Table 1: Investment Growth Over Time
| Investment Period | Total Invested | Portfolio Value |
|---|---|---|
| 10 Years | $100,000 | $215,892 |
| 20 Years | $200,000 | $620,044 |
| 30 Years | $300,000 | $1,384,435 |
Having discipline to invest early and often is an unwritten rule of wealth builders.
Continually Increase Your Income
Your income and cash flow is the fuel for building wealth. The more fuel coming in, the faster your wealth compounds since more gets invested.
Wealthy people think of their careers as businesses, always strategizing how to increase their income streams.
Growth Mindset and Skills
Adopt a wealth builder mindset of continually gaining skills, getting promotions, finding better opportunities, and adding income streams.
Never settle at one income level and get complacent. There are endless ways to increase your earnings with the right money mindsets.
Take courses, learn in-demand digital skills, network with the right peer groups, and promote your personal brand. Growth oriented individuals attract more wealth building opportunities.
Set Income Growth Goals
Determine specific income goals for the next 5-10 years. Setting wealth building benchmarks creates positive pressure to make it happen through focused effort.
Maybe your income doubles or triples in the next decade. Use income growth as a wealth accelerant to increase how much gets invested automatically.
Identify Raise Opportunities
Know your worth and identify all options to negotiate higher pay such as:
- Annual performance reviews
- Promotions
- Company change
- Industry switch
- Freelance income
- Monetizing knowledge
Wealth builders are not shy requesting 10-20%+ raises to speed up money compounding. See each raise as significantly advancing wealth building goals.
Minimize Taxes
There are many licit and creative strategies ultra high net worth individuals utilize to minimize taxes legally. This is an unwritten cardinal rule.
Wealth builders understand how reducing taxes serves as a beneficial wealth accelerator. Every dollar saved in taxes gets invested instead continuing compound growth.
Tax Advantaged Accounts
Max out all tax deferred retirement vehicles possible such as 401Ks and IRAs. These provide immediate tax savings today while letting investments grow tax free for decades.
Additionally consider Health Savings Accounts, Donor Advised Funds, Trust Funds, Series LLCs, Backdoor Roths, Opportunity Zones, and Holding Companies. Each vehicle offers unique tax minimization benefits.
Realizing Gains and Losses
Wealthy investors also strategically realize investment losses to offset any taxable gains. This legal tactic, called tax loss harvesting, allows you to completely avoid taxes during prime income earning years.
Work closely with tax professionals to maximize reliefs like business deductions, dependents, credits, exemptions, deferments, depreciations, and donations.
Relocating
Sometimes it pays to move to income tax advantaged states like Florida, Texas, Tennessee, Washington, Wyoming, or Alaska.
Fly under the radar by keeping wealth private as much as possible. Let compound growth do its thing for decades before realizing large liquid sums that trigger tax events.
Table 2: Tax Advantaged Retirement Accounts
| Type | Contribution Limits | Tax Benefits |
|---|---|---|
| 401K | $20,500 | Tax deferred growth |
| IRA | $6,000 | Tax free growth |
| HSA | $3,650 | Tax free groth + deductions |
Minimizing taxes serves as an accelerant and protection for wealth compounding. Master this and keep more money invested over long time horizons.
Manage Risk
All wealth builders are obsessive over risk management protecting their assets. Market declines or speculation disasters can setback wealth progress for years.
Asset Allocation
Use balanced asset allocation between stocks, bonds, real estate, gold, and cash. Rebalance periodically to minimize volatility swings.
Diversification into non-correlated assets ensures market or economic declines don't sink your whole wealth. Having safer liquid cash reduces panic selling in downturns.
Insurance
Transfer concentrated risks using insurance as the ultimate protective wealth building tool.
Safeguard earnings potential with disability and life insurance so future income gets replaced if tragedy strikes. Insure all properties at full replacement cost using umbrella policies.
Avoid Speculation
While taking calculated risks is part of wealth creation - gambling your livelihood on speculation risks total loss.
Avoid buying single stocks, forex trading, junk bonds, penny stocks, options contracts, or crypto bets with money you can't afford to lose.
Wealth builders make conservative decisions protecting assets already earned, while taking more risk with smaller invested amounts. Don't gamble your financial security.
Build Multiple Wealth Vehicles
Relying on one asset class is hugely risky for wealth builders. Use layered diversification across many types of appreciating assets and income streams.
Diversify Your Assets
Beyond stocks and bonds - own income producing real estate, royalties from intellectual property, equity stakes in businesses, commodities, precious metals, and cryptocurrencies.
Having multiple uncorrelated assets builds greater wealth protection. Downturns in one area won't sink everything if diversified properly.
Layer Wealth Building Strategies
Savvy investors use layering strategies stacking several wealth engines like:
Passive income streams from real estate, music royalties, patents, online courses, ecommerce side hustles.
Tax advantages retirement accounts for long horizon compounding
Alternative assets like private equity, venture capital, farmland, litigation finance
Use 10-20+ year investment horizons and keep layering in more assets through bull and bear economies. Stay disciplined accumulating through different wealth building engines.
Conclusion
In summary, the unwritten rules for successfully building sustainable wealth include:
Recap Main Points
- Live far below your means
- Invest early and often
- Continually increase income
- Minimize taxes owed
- Manage risk obsessively
- Build multiple wealth vehicles
Follow these and thinking long-term becomes easier avoiding short sighted decisions killing wealth progress.
Inspiring Wealth Building Example
Consider the inspiring example of Ronald Read who amassed an $8 million fortune over his lifetime.
He lived simply as a gas station attendant and janitor, invested small amounts from each paycheck, minimized taxes, and kept building his assets. His blue collar job became the foundation for life changing wealth.
Take Action
In the end, knowledge without execution won't amount to riches. Consistent action and disciplined habits practiced over decades is required.
Start today focusing on the 20% activities moving the needle on true wealth building - increasing income, investing savings, reducing taxes, and purchasing appreciating assets.
The unwritten rules for building wealth apply to anyone regardless of income level or background. Now go use them to propel yourself to financial freedom!
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