How To Build Wealth (It's Ridiculously Simple) - Financial Mentor

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Everything You Need to Know About Building Wealth in Just Two Sentences

Building wealth is simple.

It doesn’t require luck, genius, or special connections.

You don’t have to attend overpriced weekend financial seminars or learn the latest tricks and gimmicks sold by slick marketers.

As John Bogle wisely stated, “The secret is there are no secrets.”

The truth behind how to build wealth is public domain knowledge, simple to understand, and nobody is going to get rich selling it to you.

In fact, it's so simple it can be explained in just two sentences:

1. Make more than you spend and invest the difference wisely.
2. Develop simple daily habits that result in wealth accumulation.

I know… you’re probably a little disappointed.

You wanted something new, different, and clever – the missing ingredient that has held you back and will produce breakthrough results. The fabled “secret” every marketer tries to sell.

Instead, I give you something dangerously close to what Grandma would have said.

But listen to the voice of experience. I’ve coached hundreds of people from debtors to the wealthy, and the pattern is unmistakable.

Related: Why you need a wealth plan, not a financial plan.

And it’s not just me singing this song. These same truths were taught by Benjamin Franklin hundreds of years earlier and reiterated by numerous authorities ever since, including J. Paul Getty.

It's timeless wisdom that has been proven over the centuries, and will also probably work for you (if you just put it into practice).

In short, if you want wealth in this lifetime with the highest probability of success, then these two sentences contain the essential wisdom you need to know.

Wealth Building Step 1: Spend Less Than You Make & Invest the Difference

The first sentence summarizes how to manage your personal finances so that you grow assets.

It explains the importance of creating positive cash flow that you invest to produce additional positive cash flow.

Notice how it's composed of three separate yet connected ideas to form a single concept:

1. Spend less
2. Earn more
3. Invest wisely

There are endless variations on how to achieve this objective, but they all follow two simple themes:

• You can reduce spending immediately through various forms of frugality.
• You can increase your income through various strategies including changing jobs, getting a raise, or starting a business.

In short, you must create a gap between how much you earn and how much you spend that results in savings to invest for growth and additional income.

The twin themes of spending less and making more are not mutually exclusive, but they do require very different mindsets.

Frugality is about living on less and requires self-discipline. For most people, there is a feeling of sacrifice when following this path, thus making it difficult to succeed.

If that's you, then frugality is a slow and difficult path to wealth because you will be in constant battle between lifestyle desires and financial freedom goals.

For others, frugality is a pleasurable journey in simplification where fulfillment results from redirecting earned income toward financial freedom goals rather than squandering it on spending.

It's not uncommon for extreme frugalists to save 70% of income and achieve financial independence in less than 10 years, but it’s not everyone’s cup of tea.

Another alternative is to raise the income side of the equation. The advantage to this approach is there is no theoretical limitation to how fast your wealth can grow because your earning capacity is unlimited.

Many wealth gurus teach the income side of the equation as the “fast path” to wealth; however, if you don’t master the spending side of the equation, you still run a high risk of failure due to the all-too-common mistake of allowing spending to rise as fast as income.

The greatest wealth builders focus on both sides of the equation together. They maximize savings by controlling spending while growing income at the same time.

Related: How to be a pro at growing your wealth

It's the quickest, most certain path to increased savings for investment.

The third component to the equation – invest wisely – is also simple because everything you need to learn is available for free in the public domain.

You don’t have to take investment seminars or build extraordinary expertise. There are two well proven paths:

1. Paper Assets: Conventional buy and hold using low cost index funds and proven asset allocation models. Vanguard Funds offers you everything you need.
2. Real Estate: Direct ownership of positive cash flow real estate in your local area.

In summary, achieving financial freedom is really quite simple.

1. Spend less than you make and invest the difference wisely.
2. Rinse and repeat until the income from your investments exceeds your expenses. At that point you’re infinitely wealthy and financially independent.

With that said, the sad truth is few will achieve financial freedom despite the desirability of the goal and the simple path you must follow to achieve it.

The reason is explained in the second sentence.

Wealth Building Step 2: Wealth is Determined by Your Habits

The reason so few people build wealth is because they don’t adopt habits that lead to wealth.

As you already know, the formula for how to build wealth is simple and fully proven. The only thing remaining is to take action with enough consistency to achieve the goal… and that's where the problems occur.

Here's the formula for how this works:

[(Small, Smart Choices) * (Consistency) * (Time)] = Wealth

Procrastination is the single biggest wealth killer. You plan on getting around to it someday. You know what you should do but there is always some other priority. The kids need braces, the car needs repair, the kitchen needs remodeling.

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Action is where the rubber meets the road. It's one thing to know what to do, and it's something else entirely to get it done. That's why habits are so critical.

Habits are the reason postal workers become millionaires while lottery winners go broke.

It doesn’t matter if you look at the writings of Benjamin Franklin from 250 years ago or Stanley and Danko’s bestseller The Millionaire Next Door.

They all say essentially the same thing – the distinguishing characteristic of people who achieve wealth is they manage their money well. They have good money habits.

They don’t earn the most. They aren’t the smartest. They don’t have any special training. They just have good money habits – brain dead simple.

The reason good money habits are essential is actually scientific and results from the mathematics behind how money compounds to grow into wealth.

Small changes done over long periods of time can create massive results. It's an easy path to financial independence, and it's the not-so-secret “secret” to how to build wealth.

That’s why daily habits are so important.

• A daily habit of frugality saves small amounts every day that compound and grow over long periods of time to become substantial wealth. Try this Latte Factor calculator to prove it to yourself.
• A daily habit of increasing your earning capacity through training and education will add small amounts every day to your income potential.

Both of these daily habits will create an increasing spread between what you spend and what you earn, which will increase your wealth at an accelerating rate.

This isn't rocket science. It's just daily habits dedicated toward a specific goal – building wealth.

The habit causes the action which produces the result. It's simple cause and effect.

Habits are the easiest and simplest way for you to cross the bridge between how to build wealth using the simple formula above, and actually doing what it takes to achieve the goal.

You don’t have to intellectualize the process or overcome massive obstacles. You don’t have to get ready to get ready.

Related: Here’s a scientific system to build your wealth now

Instead, you just start today by adopting one habit that serves your wealth goals. Here are some potential starting points:

1. Sign up for an automatic savings program.
2. Opt-in to your company 401(k) (if they offer it).
3. Prepay a small amount on your mortgage.
4. Find an unnecessary expense and eliminate it.
5. Clean up clutter by selling unused assets (RV, boat, jewelry, etc.).
6. Repair something instead of replacing it.
7. Develop a niche expertise in your profession that commands a higher wage.
8. Start learning about asset allocation or investment real estate.

Just pick one habit and start today. Practice the habit until it becomes permanent, then pick another habit and do it again. Then another and another until you can see your wealth grow.

The greatest obstacle to building wealth is procrastination. Habits are the simplest way to overcome procrastination and get into immediate action.

Habits reduce the entire wealth building process into bite-sized pieces that are easy for anyone to digest. The compounded effect of all these tiny actions over a lifetime becomes wealth.

Summary of How to Build Wealth

The formula for how to build wealth is simple: spend less than you make and invest the difference wisely.

The mechanism to take action on the formula and produce results is equally simple: adopt wealth building habits.

Here's how it looks in a different format: [(Small, Smart Choices) * (Consistency) * (Time)] = Wealth

The only question remaining is whether or not you will do what it takes.

Will you follow these proven, simple formulas to achieve amazing financial results? Or will you return to your same old patterns that produce the same old results?

The only thing standing between you and wealth is the willingness to act on this timeless wisdom.

Are you ready to jump in and design your life so your daily actions create your financial independence? This course will help you form an exact step-by-step plan to become financially free.

Please share your thoughts in the comments below. How have these principles worked for or against you in life? What takeaways did you get from this article?

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Comments

1. KellyWilliams

   Thanks for this article, i stumbled on your website whilst researching building wealth, spent alot of time and money on this path, but your website says it all and there are no gimmicks…thanks for providing this information, i especially like your emphasis on consistent action…am from the United Kingdom and the principles of wealth are the same everywhere…thanks once again.

   • Todd Tresidder

     @KellyWilliams Thanks for your feedback. I’m glad you found us and I appreciate your participation in our community. I hope to hear more from you in the future.

2. PatrickMeninga

   I definitely agree with the habit thing. The only wealth I have built in my life is a direct result of some insane work habits. I built a website and sold it off for a very nice amount, and creating that website was done “nose to the grindstone.” I wrote every day, for over a year, even when I did not feel like it. Over 1,500 articles and over one million words. I could not have done that without pushing myself a great deal, to reach for more discipline. I had to stretch to learn how to write that much, to become that consistent with my writing. I had to stretch myself to start treating it like a real business. Definitely, habit formation is critical.

   • Todd Tresidder

     @PatrickMeninga The understated truth is that success is hard work. That is true across the board. The appearance of instant success almost always stands on the foundation of many years of hard work.

3. jptufo

   Great work as usual, Todd. Your honesty and transparency is refreshing as you spread the truth about investing to the world. Truth is simple. “Guru’s” over complicate to persuade their followers that they have the answers. There are two other items to learn when investing:1. Never invest with money you cannot afford to lose.2. Always get your principle back. The best of success to you!

   • Todd Tresidder

     @jptufo Yes, those are good rules to add. Thanks.

     • January

       I agree.

4. GregoryMatveev

   Hello, Todd R. Tresidder. My name is Gregory Matveev.I study english it’s my hobby.I use habits wich you listed, and I thanks You for e-mail wich sent. Because, as you do not do every day the same thing, but still good when you recall that you need to do. And you are very good at it. I need it! I want to habits of wealth. All the best

   • Todd Tresidder

     @GregoryMatveev Keep practicing Gregory and those habits will become your reality. Keep going for it. Persistence conquers all.

5. Larry Weber

   This article is right on the money. We used many of the principles and strategies outlined above to build our wealth. Todd, you have an incredible gift of stating best practice financial practices strategies in simple terms. You cut through the hype and tell the financial truth. Your work is a gift to us all.

   • Todd Tresidder

     @Larry Weber Wow! Thank you for those kind words Larry. Much appreciated!

6. RodrigoSilva

   To read your articles is similar to going to Mass: it does not change my religion but confirms my faith.

   Thanks for remind your clear and consistent message.

   • Todd Tresidder

     @RodrigoSilva I love your analogy, Rodrigo. Thanks for sharing. For what it is worth, my coaching clients often refer to me as Yoda or Obie Wan. Fun stuff!

7. swampland

   Todd,So why aren’t I rich? If ” The formula for wealth is simple – spend less than you make and invest the difference wisely. ” is the solution? The first part is the simple part, but the second half is the real killer. Just looking a bit at us, we tend to keep things until they die. We now have a car payment because the 27 year old one died. Just could not repair it one more time. We still have a tube type TV because it still works. We only go out to eat when there is something special going on, or to celibate. We don’t have a lot to spend, so we don’t. Every paycheck some goes into the 401(k). If I don’t see it, I don’t spend it. Likewise, I discovered Sharebuilder at the start of the year. Now, every two weeks a small amount goes to the investments automatically. That is where the problem of invest wisely comes in. Not a clue if it is wise or just wishful thinking on my part that they are good choices. I picked a few from the DJIA that pay dividends, and set up automatic re-investment. So far I am up a wee bit. I a few years that should be more than a wee bit. I looked at the Vanguard funds, but could not meet the minimums. That is why I turned to the Ing Sharebuilder program. A little bit here, and a little bit there. Before I know it, I now own a few shares of stock with very little pain. Thanks for publishing your ideas,

   • Todd Tresidder

     @swampland You’re welcome!

8. Pedro V

   Hello Toddthis is Pedro (back again)Good and sensible article (as usual)The equation is simple but the 2nd part (invest wisely) is not so easy to bring into action (unless for me). Here in Spain,the situation is becoming difficult,( I don’t even trust we.ll stay in the Euro for a long time) so I’ve tried to follow your tips: I have bought some amount of silver coins (instead of gold which is more expensive and not so easy to break up in small amounts) and I am thinking about buying a real estate in USA, to get passive incomes from renting, and my question is: Is a good moment to buy a condo in USA (ie Orlando or Miami?) What is your forecast abiut the real estate market? (My idea is to have some money out of Euros and to get passive incomes form our savings)Thanks in advancePedro

   • Todd Tresidder

     @Pedro V Good to hear from you, Pedro. Unfortunately, I can’t give personalized investment advice (by law) because I’m not a licensed securities salesman (financial adviser, broker). I dropped those licenses when I “retired”. I’m strictly an educator and everything I write is educational. With that said, I can say from an educational standpoint that you may be confused. Low valuations are a strong statistically valid indicator of high expected returns in the future. Thus, Rothchild’s edict to “buy when blood runs in the streets”. Greece has the lowest valuations in the entire world right now by some measures and Spain is not too far behind. Sometimes opportunity sits in our own backyard and we can’t even see it because we are too close to it. Hope that helps…

9. joestanfield

   Hello ToddI have followed your writings from time to time and enjoy your website. I myself have been on a quest to financial freedom. I have read extensively. With that said- I have found only one way to create wealth and leave a lasting legacy for my family-safely and guaranteed. There is no other vehicle that is as old and tried and true as whole life insurance. Nelson Nash’s book – Become your own Banker- is the foundation for this concept. I would suggest Pamela Yellen’s book -Bank on yourself. There are specific contracts with certain whole life insurance companies that provide the opportunity for you to provide a death benefit for your family. But at the same time build a cash value that can be loaned against for interest requiring expenses- cars, appliances , etc once purchased using “your own bank” you pay yourself back with interest and receive dividends the rest of your life -thus whole life. It requires discipline and is definitely not a get rich quick scheme. For me after being in business for 20 years I never want to go to a bank again for anything. Also to have peace of mind that my cash value will grow every year guaranteed and my family is taken care of financially in the event I die prematurely is a wonderful thing. If you have commented on this particular vehicle please refer me to where I may read if not- Please comment – I would love to hear your thoughts. Have a Merry Christmas and wonderful holiday of rest and Happy New Year!Joe Stanfield

10. EverydayMoney

    Great visual, Todd. I’ve tweeted, posted and Pinned it. As I mentioned on my Facebook as well, I’ve printed it off and plan to put it up in my kids’ rooms. When they get frustrated and impatient and are tempted to follow some “secret” path of the rich or try a get-rich-quick scheme, I’m hoping they’re remember the infographic and forge ahead.

    Thank you for your time in putting it together!

    -Todd

11. MarissaHDr

    In this Digital Age when we are bombarded with may information, reading a meaty article like this in ‘capsulized’ form is indeed a spirit enabler. Very well said, Todd!

    The right wealth building habits even in bits can really result to great financial freedom. Your triangular presentation of earning, saving and investing money is a very fundamental principle which should find a strategic place on our mental wall.Your inspiring words touched me. Thanks a ton! Keep sharing your light! God bless.

12. sabo

    Good article, based on tried and true facts of frugality, discipline and investing some of whats left over.Everyone would be much better off if they implemented only one of the three, but in our day and age, I think consumerism rules the day.

13. SteveKobrin

    I love the idea of habits being the key to success. It gives you so much control over your own destiny. With the right habits we guide ourselves narurally to the desired outcome.

14. William Janda

    Get up every day. Go do something about it. Work…

15. WealthCreatingMind

    Great article. I think the most important part is keeping good habits. To do so needs a degree of mental muscle and if you have that, then you are already on your route to success.

16. merchantsystems1

    Hello,thank you for posting such useful article. I was in search of stuff like this. but now m search is completed. Please keep posting like articles like this.regards Diana

17. Bruce McKenzie Jr

    All I have to say is… WOW! After years and years of looking for a special formula and trying to find a secret way to make or build wealth. I cannot believe how incredibly simple and how much since it makes. Thank you, im definitely listening (and following) now.

18. WaveTaylor

    Great article. You are right when you say procrastination is a killer. For the last 10 years or so, I have been investing in real estate and have not brought one property,(Sigh)!!

19. vjessi11

    Great Article

20. morei

    Thanks, Todd. This is one lifesaver for me and will be a positive life-changer as well! I’ll surely let you know when I reach my first landmark goal in financial freedom! Till then, God bless you, and I, too, and our families and community.

21. ubens

    Thank you for this article I have been searching for something like this for long now.

22. qcarroll15

    I 100% agree with this article. Forsomething seeming so difficult to be broken down into two basic steps, isamazing. These steps only seem to appear difficult because of our mentality ashuman being. Those who can overcome this natural urges of our mind become themore financially successful individuals. For those of us who struggle to reachover the hurdle of ourselves, procrastination usually comes into play. Causingprocrastination to single-handedly be the most difficult obstacle to overcome. Procrastinationcan only be overcome through extensive discipline and the ability to be aself-starter.

23. Walter

    Hi Todd, I say what you set forth here in your posts is amazing….it’s cristal clear, you just put things very simple and straight to the point…so people who read this articles focus on achiving therir goals and they get encouraged to improve with samall changes as you say…step by step…well i just want to say hello, my name is Walter I´m from Bolivia South America…..Regards

24. udo

    This is the best article i have read about building wealth. It’s so simply explained that makes building wealth a no brainer.I will read it everyday for a long time and make effort to do as prescribed.Thank you

    • Todd Tresidder

      I’m glad you got value from the article. The next level is equally well explained in this course https://www.financialmentor.com/educational-products/seven-steps-to-seven-figures/wealth-plan The challenge with the traditional model with traditional assets (as provided here) is there are strict mathematical limitations. The advanced model as explained in this course breaks through those limitations. Hope that helps.

25. The FIminator

    Great article, I recently came across this website. The fundamentals are so simple, yet a lot of us plod through life with no financial plan, even though finances drive most of our time every day.

26. Tiffany

    Hello Todd, I’m very thankful that I came across your website! I personally Thank you very much! I have researched a lot and No One has simplified the process better than you have for us. Your work is truly appreciated! Many blessings and success to you and your family, from my family. Thanks again for sharing your wisdom with us!

    • Todd Tresidder

      You’re welcome. Thank you for your support.

27. Crisanto

    Thanks the habit becomes you and I believe this!I have the habit of working three jobs. And now am definitely making more than I can spend.Also investment is the key! Don’t even believe with emergency fund. Just invest the money and grow from there.

28. Simon

    Very good article

29. Irena

    Thanks for the article, I wish I could’ve read it wen I was younger. Now I know better, but still like to remember those rules from time to time 🙂

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