The 3 Levels of Wealth Creation
By: Cait Mack
Tags: Money, Wealth, Life, Life Lessons, Finance

The 3 Levels of Wealth Creation

So, what’s the formula?

Add levels 1, 2 and 3 (all below) together and it equals millionaire wealth.

Don’t laugh at the Thousandaire level- most Americans aren’t even there, sadly. But you have to be a thousandaire before you can be a millionaire, so let’s get started.

Level 1- Thousandaire.

Make saving a habit.

If you’re ever going to build any kind of wealth, you have to master this part. You must learn to cut costs to the point that you can save a portion of your income. 10% is the minimum. I’m currently saving anywhere from 30–50% of my monthly income and splitting it between a high-yield savings account and a stock investment account.

I don’t care if you have to live with your parents, a roommate, own only 2 pairs of shoes, skip happy hours, do your own hair, whatever you have to do. There are ways to trim your cost of living so that you can save. We’ll get to the addition part of monthly income, but right now, learn to subtract monthly costs until you can save.

Master compound interest.

Learn about, and come to understand how compound interest works, so you can make it work for you. Warren Buffet calls it the 8th Wonder of the World and that should be reason enough for you to want to understand it.

Save your money, invest it, reinvest what you earn into additional assets, repeat. Start doing that as early as possible. That’s the basic gist. Also, learn how this same compound interest eats away at your money when you’re in debt.

Build your credit.

Get credit cards, preferably ones with rewards (love those points so I can buy discount gift cards!), and pay them off in full every month. I actually pay mine off in full every 2 weeks to keep the utilization very low.

If you get a car loan, mortgage, school loans- pay them off every month, try to pay a little extra each time. It adds up! My last car payment was 196 a month, and I paid 200, yes, just 4 dollars more. After about a year, I noticed they told me I only owed them like 33 dollars a month!

Anyway, a good credit score will save you a lot of money over the life of large loans such as mortgages. You also may need it to start that business we’ll discuss in Level 3.

Your credit score is made up of:

Payment history (35%). Pay off cards and loans on time, every single month. Credit utilization aka how much you owe (30%). Pay in full every month or every 2 weeks if possible and do not max out your cards. Keep the balance to 30% or less your total credit line. I keep mine at 2% or less, but that might be kind of crazy. I’m a nut because I absolutely destroyed my credit in my 20s. Length of credit history (15%). Just keep plugging along with your good habits. Nothing to do here but let time pass, as it always does. New credit (10%). Don’t open a bunch of cards at once. That’s it. Credit mix (10%). A blend of credit- credit cards, car loan, mortgage, etc.

Level 2- Hundred Thousandaire.

You HAVE to Invest.

Don’t get fancy here. Your employer’s 401k match is a great place to start. Or a Roth IRA. I’m in a Roth 401k match, so you can imagine my delight. ETFs, mutual funds, and things of that nature will suffice for private stock accounts. If you want to pick individual stocks, be my guest, but you’re not going to be good at picking them. You’ll have some winners, yes, but you’ll have losers too. A lot.

But, your money is losing value just sitting in a standard savings account. At the very least, look for high-yield savings accounts. I have quite a bit parked in a high-yield savings account right now because I want cash on hand for a home purchase. But anything extra, I put right into my stock account.

Maintain a Stable Job.

This is important due to that pesky saving habit you need to keep up with. Keeping a stable paycheck coming in is paramount while you’re building wealth. So, be good at your job. Be employable. Don’t quit too soon.

You better have a stable business in place prior to quitting that 9 to 5. There’s something to be said for day jobs, aside from the steady paycheck. Paid time off, health insurance, a set schedule, etc. Those are all things you have to cover yourself or give up entirely when you’re your own boss.

Create Multiple Income Streams.

Whether it’s writing/blogging, online courses, e-books, selling apparel/merch, driving for Uber, renting a room for Airbnb, consulting, whatever. Just find a way(s) to add to your incoming money stream every month.

Currently, mine are: my job, stock dividends, and writing. I’m always looking for ways to monetize more things though. You should be too. For example, I can monetize writing by getting paid on Medium, being a ghost writer, and doing copy for websites. There are 3 ways to get paid using one talent.

Level 3- Millionaire.

Get into Real Estate.

Real estate is one of the few ways to get very wealthy. Flipping houses is great if you know what you’re doing, but it’s very competitive. Owning a property that you rent out is ideal. It will likely be easier to purchase a home that you can rent and then leverage that into another home. But if you really like the idea of flipping, consider joining a real estate partnership/group where you can fund flips with other partners.

Also, if someone in your family passes away and leaves a house to you…don’t sell it. Rent it out. Keep it in the family. You could also do what some have done, very successfully- purchase a duplex, live on the one side, and rent the other side. The renters will pay your mortgage and you get to live for free while paying down your mortgage on a nice property. Once you’re comfortable, move out and rent both sides.

Side note…while rental property is an asset, your own home is not. It takes money from you constantly- mortgage interest, taxes, repairs, utilities, etc.

Own a business.

And finally, the other way Americans get millionaire rich- they own a business. Notice I didn’t say start a business. You don’t have to start it, you could buy a business that already exists. My girlfriend and I are discussing buying her current boss’s insurance business upon her retirement for example.

I would also really like to purchase a car wash within the next decade. I have no desire to start anything from scratch. But if you do, do it! Start small and keep it cheap. The tax breaks are great too!

Fun fact: You can combine the benefits of business ownership and real estate by being a landlord.

Until next time, work hard and be weird!