The Personal Finance Podcast - The 4 Life Changing Options to Building Wealth (Level Up Your Money!)

Episode Date: April 21, 2021

050 The 4 Life-Changing Options to Building Wealth Got questions? Ask me on Instagram Here. @mastermoneyco This is the fastest way to get a response from me.  Personal Capital Free Wealth Management and Budget App  CIT BANK (Best Savings Account) 4 Levers You can Pull to Build Wealth  The Wealth Building Quadrant  How to Make Money Decisions  More Episodes You Will Love:  The Stairway to Wealth  How to Negotiate Your Salary  How to Negotiate Your Bills  Check out all the Stuff I Recommend!  M1 Finance Best Place to Invest  Personal Capital Free Wealth Management and Budget App  CIT BANK (Best Savings Account) ** Some links may be affiliate links and we earn a small commission at no extra cost to you. We only recommend products we truly believe in.  Check us out on social fam!  Twitter Dollar After Dollar Instagram Learn more about your ad choices. Visit megaphone.fm/adchoices

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options to building wealth. What's up, everybody, and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of dollar after dollars.com. And today on the Personal Finance Podcast, we're going to be talking about the four life-changing options that you can use to build wealth. If you have any questions at all about this episode, hit me up on Instagram at dollar, A-F-T-R-D-Ler. You can leave a question in the comments or hit me up with a DM. Also, follow us on Spotify or Apple Podcasts or whatever podcast player you use.

And if you want to help out the show, leave a five-star rating on Apple Podcast. That truly does help out the show if you want to give back if you're getting true value out of this episode. Now, what I want to do today is show you the life-changing options that you can utilize to start building wealth, because what a lot of people do is they try to decipher, hey, what do I need to do first to start building wealth? And we talked about this in the episode called The Stairway to Wealth, where I gave you the options, hey, here's what you do first, here's what you do next, and then you start investing your money next, and we go through each piece. But a lot of people try to think through, well, which lever should I pull right away? Which wealth building lever

should I pull and really go after first. So that's what I want to do. I want to take the guesswork out for you guys so that you have a roadmap to be able to just start building wealth right away. Because if you eliminate as much confusion as possible and you just have a plan set forth right in front of you so that you can just go after building wealth, then you're going to be completely unstoppable. It's just getting that plan into place and setting up the action steps so that you know what you're doing next. And that's what this is for. Because if you pair this with the stairway to wealth episode, you're going to be unstoppable. Because if you go after all of these pieces, if you go after these four life-changing options, then you're going to be able to be far ahead of everyone else around you.

So let's get into the four levers you can pull to start building wealth. So when it comes to building wealth, you have these four ways that you can attack wealth building. And understanding which one to go after first, is the key. So the first one is that you can spend less. So you can reduce your spending each and every month. And this is where most people start. Why? Because it's the easiest thing that you can do on your own. It's the thing that intuitively a lot of people think is a big part of wealth building. And yes, it is if you're overspending. But for a lot of people, they maybe will take this too much to the extreme. But how can you spend less? How can you actually cut back on your spending if you're spending too much? If you don't to have extra cash available to start investing or building an emergency fund, then you're going to have

to exercise this option first. You're going to have to spend less money. There's no way around it. There's no way around spending less money if you're overspending. And if you're spending more than you make and you're going into debt each and every month, then this is an absolute for you. You have to do this. You will never build wealth if you spend more than you make. Because wealth building is actually extremely simple. It's extremely simple on paper. It's extremely difficult to execute in reality because all you have to do is spend less than you make and invest the difference. And you hear that all the time. You hear people say that all the time. But in practice, it's extremely difficult to actually put this into play. So how can you spend less money each month? Where can you start slashing? Well, we had an episode talking about

the big three and how that's the biggest impact on your personal finances is if you're going to cut back, you want to cut back on the big three because that is statistically where most people spend most of their money. So what is the big three? It's housing, transportation, and food. Those are the big three that if you start cutting back on those, it'll make a drastic impact. It's not cutting out your daily latte each and every day. It's not cutting back on avocado toast when you go out to eat. It's making sure that you make big impacts on the places that actually make a difference. And those are the big three. So you're You could think of things like if you're way over spinning on your housing, let's say you spend over 30% of your income on housing.

We always recommend here at the Personal Finance Podcast to spend less than 30% of your income on housing. I'd like to see you guys spend less than 25% closer to 20%. But I know that's not a reality for everybody in specific situations. Looking at your housing saying, am I overspending on my housing? If you're spending 40, 50% of your income on your housing, you're spending way too much and you will never get ahead. I repeat, you will never get to head if you're spending that much money on your housing.

The same goes for transportation. If you have a huge car payment, a lot of people now, they say the average car payment in the U.S. is $555. $5.55 invested over the course of 30 years is well over a million dollars. So are those new cars worth a million dollars to you? Because if you keep getting new cars and re-uping car payments, the more and more you do that, the way, the worse your situation is going to get, especially if you're not getting ahead with your finances. If you're getting ahead with your finances, who cares? Get whatever car you want. Because cars are having a nice car is a fun thing to have. I understand that. But if you're not getting ahead, then spending all your money on your car payment is not worth it. And alongside that comes with auto insurance, higher auto insurance, gas, all these things, repairs. All these expenses add up

into your auto in your transportation budget. Someone with a $600 car payment could be spending, well, upwards of $1,000 a month after you factor in insurances and repairs and all these other pieces. So make sure you're understanding this so that you can go about spending less to start wealth building. And then the last one is food. And we're going to have a whole episode on how you can save money on groceries and food and all these different pieces. But understanding that a lot of people, when I start to teach them and coach them on how to start a budget, a lot of people see their grocery bill and are shocked how much they spend every single month. And it seems like a lot of people think they spend, you know, somewhere around $100 a week.

and they realize they're spending $1,000 a month on groceries. And this is where you can get tripped up, because if you take multiple trips to the grocery store or things like that, you can really lose track of where you are every single week. And if you want to start exercising, reducing your spending, another great way to do this is start to negotiate your bills. And we had an episode, which I'll leave a link in the show notes, about negotiating your bills. But this is a fantastic way to be able to reduce your monthly costs a few hundred bucks every single month. It's a fantastic way to do that. And it's one of my favorite ways to start reducing your costs right away.

Because what I would say to do is first look at the big three, housing, transportation, and food, see if you can cut back anywhere in that spot, especially if it doesn't bring you value. If something doesn't bring you value, you should be reducing your spending no matter what. And you should be spending lavishly on the things that do bring you value. So if you love eating out, then spend lavishly on eating out, but cut back the costs if you don't care about your car. If you don't care about your car, drive a used car and eat it. out as much as you want. Ball out when you go eat out. But making sure your spending is going exactly where you want it to go is the most important thing that you can do with your money.

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Find your advisor at IGPrivatewealth.com. Now, the second lever you can pull is earning more. Now, here at the Personal Finance podcast, I think your income is the most important catapults you can have to building wealth. Increase your income and your problems will be reduced as long as you spend less than you make. So increasing your income is a very powerful factor because as your income starts increasing, you can start investing more. And when you can start investing more, your dollars are working for you every single day. Just think of your dollars as little employees for you. And as you start investing more, your employees and your company is growing.

And pretty soon, once your dollars are large enough, they're going to replace your income. And when they replace your income, you're done working. If you hate your job, you're in the middle of a cubicle right now listening to this podcast and you hate your job, this is a fantastic way to get ahead. What you want to do first, if you want to increase your income, is try to increase your income at the place you spend the most time each day, which is your job because that's going to make a major impact. And we have a couple of episodes talking about how to negotiate your salary with your current boss so that you can truly increase your income.

Because doing that is the single biggest way to accelerate the speed at which you can retire early or build wealth. The second way, once you've started to negotiate your salary at your job, is that you can start building a side business. And this is what I did. So I negotiated my salary, would get raises and salary increases and pieces like that. And then I started building side businesses because side businesses will truly increase your income as well. And what it seems like it happens is that at the beginning you're kind of slogging through this income increase. And then all of a sudden, it all starts to come together where your businesses start to make money, your side hustle start to make money. And you're going to start seeing those raises because asking for a raise isn't like a walk into your

boss's office and say, hey, give me that raise. No, you have to actually work with them. You have to talk it through with them. it's usually at least a six-month time frame where you're saying, hey, I want to get promoted, I want to make more money, what do I have to do to do this? They tell you what they want you to do, and you execute it every single day. Because listen, at most companies, most of the people out there are slacking. And it's not that hard to get ahead if you really look at your coworkers. Because if you work hard, if you're on time, and if you're doing what your boss asks you to do to get that raise, there's no reason you won't get that raise. Because the system that I put into place, I guarantee none of your coworkers are doing unless they listen to the personal finance podcast.

But the system works. I'll leave a link in the show notes. I wrote a free e-book for you guys if you want to read through it so that you can see how you can increase your income. The third option to building wealth is to take the cash or the capital that you've saved up and put it towards investments. There's a number of ways that you can invest your money. The first is that you can invest in stocks. Now there's a number of different types of stocks. You can go deep into stocks. You can go individual stocks, you can go dividend stocks, you can go index funds. All of these things are investing in stocks. Now my preferred way for most people who don't want to take a bunch of time, as we've talked about in the index fund episode, is index funds. Because there are a simple way to invest where you don't have

to think about it because you're well diversified, you're just mirroring the market, and you don't have to pay high fees. So that's my preferred way to invest deployed capital. And capital that you've saved up, cash that you've saved up, is to invest it in the market. And you can also invest. invest in bonds. And all a bond is, is that you're a lender. So you're either lending to the government and they pay you an interest rate, or you're lending to local governments, which are called muni bonds, and they pay you an interest rate, or you can do corporate bonds and lend money to companies. And bonds are a lot less volatile than stocks, but they have a much, much, much lower return. That is why having some sort of asset class mix between stocks and bonds is recommended

for a lot of people. Now, if you're young, you'll hear a lot of folks say, increase the amount of stocks that you have. And that's what I do. So I'm pretty much invested wholly in stocks. I have a very small portion in bonds. But because of my age, I want to see the majority of my investments in stocks and index funds. Because that is what the highest return is. And I have a long time horizon for recovery if there's some sort of recession. Another way you can invest your money is in passive real estate. And there's a lot of companies out there now where you can invest your money and they'll do all the work in terms of buying real estate, finding the deals, running the numbers, all that kind of stuff. And then you get a return back based on that. That's another diversified way that you can do it. So thinking through

each of these, what your temperament is, how you can handle it and picking an asset allocation so you can best the money that you've worked very hard for and deploy it towards things that will actually make you more money. Now the fourth wealth building option that you have is to create assets. Now this is a big one for me right now. This is what I'm focusing a lot of my time on is creating assets because I've got my systems into place for spending less, for earning more, and for investing my money. So now what I'm doing at my stage in my financial career is I'm working on creating assets. Now what does that mean? One way to do that is you could buy things like rental properties. You could buy a house, fix it up, find tenants, make sure that it's cash flowing,

run your numbers, all those pieces, and then put tenants into place. And then someone else is paying your mortgage for you every single month. And buying rental properties and building assets like that, as you buy one or two or three, you're going to see your income start to rise. And the more assets you have, the more money you're going to start making because cash flow is king. Cash flow is a massive, massive piece of wealth building. And assets are what create cash flow for you. Another way to do this is to buy cash flowing businesses. Now cash flowing businesses are actually not as expensive as people think. When I started looking into cash flowing businesses, I was surprised at the prices that you could find for things like laundromats or car washes. Things like that actually can cost less than it would be to buy a rental property and they cash flow more. Now you're going to have to be more active in those cash flowing businesses and I'll show you how to make decisions on that in a second. But they make a lot more money than an individual house or duplex or triplex would. So what comes into play as you're making these decisions is how much time do you have? How much income do you have? And where do you want to be within your future? So let's talk about how to make decisions on which lever and which button to push first.

Now, what I want to talk about here is called the wealth building quadrant. And it's something that I created, whereas you can look at your personal situation and say, hey, here's where I am. How do I make my next decision? So the first one is, if you have lots of time, but you have no money, what should you do first? Well, if you have lots of time and no money, then you need a, focus on increasing your income so that you can get some money and B, cutting your costs, because cutting your costs will allow you to get some money, and increasing your income will allow you to get some money. So this is for folks who need to get their financial situation together. If you're saying to yourself, hey, I'm working a

job, I don't have a ton of hours right now, and I'm spending a lot of money at the same time. What do I need to do first? Well, first you need to find a job that will pay you more, that you can work more hours so that you can increase that income and then reduce your spending, spend less. Specifically, if you're in debt or something like that, then you want to reduce your spending so that you can increase the income so that you can pay down debt because once that debt is paid off, all of a sudden, all that money that you were paying towards debt is now going to you. And what can you do with that money once it starts going to you is move up to the next level and start investing your income. And that's where the powerful wealth building catapult comes into play.

Because once you start doing that, you're going to start getting ahead and your net worth will start to rise. And as your net worth starts to rise, you're making extreme progress. And making progress, as you will see, the more progress you make, it just starts to snowball. With your money, compound interest is everything. And once your money starts to snowball, there's no stopping you. So understanding this early and doing this early on as early as you possibly can is going to make all the difference in the world for you. The second one, if you have lots of money, but no time. So maybe you're working a job and you have a great salary. And you have all this money coming in and you don't know what to do with it because you have no time. You have no time to do anything else

to start a side hustle or anything else because you make so much money at your job. And it takes all of your time, sometimes even nights, weekends. I understand how that is. I understand how it is to have to devote all your time into a specific job. Then you need to focus on more passive ways to increase your income, which is investing, investing in the market, in stocks or bonds or passive real estate investments. Because this is a way for you to deploy your money, say, into index funds, your money will grow at, you know, 8% historically, and then you can continue pursuing your job and deploying your time to the place that makes you the most money. And this is for folks who are high earners. High earners need to be doing this because a lot of times their job is going to take their time away

and they want to focus on their career, then they want to be able to deploy their money somewhere that allows them to increase their wealth. That is passive investing in real estate, stocks, or bonds. Number three, if you have some time and lots of money. So if you have some time and lots of money, one of the best things that you can do is buy cash flowing assets, because you can use some of that time to work on those cash flowing assets, and you have the money to deploy to purchase businesses like that or to purchase rental properties and to think through those options. Now, can you deploy a team or a management team to be able to do this?

Absolutely. And if you have enough money to do that, you can absolutely do that. If your time is extremely precious to you, maybe you want to spend more time with your kids or your family, or you're getting older and you just want to retire, essentially, then putting a team around you, if you have enough money, is fantastic. But if you have the extra time and you want to put some sweat equity into play so that you can truly build real wealth, because wealth building, I think, is once you get to this asset phase, you're going to make real money. And that's where the money is truly, truly going to grow for you. So understanding that, if you have a little bit of

time, deploy some capital towards cash flowing assets. And then number four, if you have some money and lots of time, then what you want to do, because if you have some money, you can still invest into assets. There's very creative ways to invest into assets. You could do things like seller financing where someone who's selling a business will give you a loan and you pay them some of the cash flow every single month until that loan is paid off. So they act as a bank of sorts. Or you can go get bank loans for rental properties. Things like that. There's creative ways to do this where you can still buy assets and utilize that time that you have to start building wealth through those assets. And at the same time, it's going to increase your income so that you can buy more assets. It's just a snowball

that starts to cataple. And then lastly, you want to invest some of that money as well into passive investments so that your money continues to grow. And then there is one outlier to the wealth building quadrant. And that's when you have no money and no time. So someone who has no money and no time typically lives paycheck to paycheck. And if you're living paycheck to paycheck, I will have an episode coming up on how to get yourself out of that situation because I know that is one of the most difficult things to get out of. But if you're living paycheck to paycheck, and this is way easier to say than to do, you probably already know what you need to do, but you need to cut back on costs and then increase your income. Find a way to increase your income. Either get another job that will increase your income

or negotiate how much you make each hour or your salary or whatever situation that you're in. Because once you start pursuing these activities, your wealth will truly begin to build. And if you get serious and start saving a significant portion of your income, say 50% or more, you will see your money grow extremely fast. If you look at the people who retire early, most of them start saving a significant portion of their income, 50% or more. Now, that may sound drastic to a lot of you, and a lot of you may not want to do that. And I understand that.

A lot of people don't want to save 50% of their income. But it is another option that you have into place that if you want to retire faster or you want to get to some of these levels faster, then it's one option to think through as well. If you're not sure where to start, listen to the Stairway to Wealth episode. It was a couple of episodes back. And I'm going to leave a couple of other relevant episodes in the show notes for you guys to listen so that you can start building wealth. Because that's what I want for each and every one of you is to bring as much value to you

as possible so that you can build as much wealth as possible to provide for your family for generations. Not just this generation, but generations to come. That's the goal of this podcast. And so all of us working together to do that is going to be a fantastic way to see everybody grow. If you have any questions, hit me up on Instagram at dollar a F-T-R-Dolar. Don't forget to follow us on Spotify or Apple Podcasts or whatever podcast player you listen to.

And please, if you want to help this show out, if you're getting value out of this show, leave a five-star rating on Apple Podcasts. And we'll see you guys on the next episode. Thank you guys so much for listening. And if this is your first time listening, consider subscribing so you never miss an episode and share this episode with a friend. And don't forget to leave a rating and review on iTunes as well, because our goal is to bring as much value to you as possible. And we're trying to spread this message that money can buy freedom. That's what money is there to do,

is to buy more freedom. So thank you again so much for listening, and I hope you have a great day.