Four Steps to Building Wealth

by TTMK on January 27, 2014 · 9 comments

how to build wealthMake, save, and invest money.  Then protect it to avoid big losses.

There it is!

Take those four steps, and we’re on the way to building wealth.  Yet, why is it that building wealth isn’t quite that simple.  Not saying it’s impossible, as many of us are working on it every day.  But the basic framework shouldn’t be that complicated to understand.

Making Money

I see this as step one.  We can’t save or invest, or have anything to protect, if we don’t make money in the first place.

To me, this should be the priority for most of us.  Admittedly, I do enjoy saving money, and finding opportunities to do so.  And yes, I write about it quite often, since it’s important and has a place at the table.

But we have to first make money, and make sure that we keep that income stream intact.  Is this something you’re good at, or is not enough income truly an issue?  I’d say that doing the best we can at our work, keeping our eyes open for good opportunities, being marketable, and networking are all essential to pulling in money.  Additionally, being goal-oriented with well-planned aspirations gives us a target.

Do you feel you’re doing all you can here?

Saving Money

So let’s say we’re truly making good use of our talents and skills, and are generating a decent income.  Does this mean that we have more money to afford an upgraded lifestyle, or does it mean that we have more money to save for our needs?  I go with the latter.

How about you?

So while making money in the first place is a primary focus, as cash flow is vital, we need to save in order for it to be more than just paying current bills.  Our savings can be used to pay our future expenses, and can even throw off cash flow to provide with income if we aren’t working.

Investing Money

Just saving money isn’t enough to build a lot of wealth, unless the amounts are truly exceptional in nature.  Inflation erodes purchasing power, so we need to make sure that we earn a good rate of return.  Of course, balancing returns with risk is important to consider.  But every percentage point of rate of return can make a big difference.  This also comes into play with investing or fund fees, in that reducing them can help us build wealth too (all other things being equal).

Protecting Money

If we make, save, and invest our money conscientiously, we can build wealth.  If we don’t protect it, we can lose it.

It’s kind of like a football team marching down the field, about to score a touchdown, then being careless and dropping the ball at the one yard line.  If they don’t protect the football, all that success to that point could go to waste.  Even worse, that fumble could be catastrophic and might be returned for a touchdown by the other team!

This is where we need to make sure we have the right insurance.  Whether home, car, liability, or other – we have to protect ourselves with insurance.  Also, this means we need to make the right moves with respect to estate planning and other big decisions.

Really, carelessness in many areas of life could reduce wealth.   This might even include health, because lack of it could impact our ability to make money while concurrently draining us of money at the same time.

Avoiding the big mistakes is a part of building, managing, and keeping wealth.

Bottom Line:  building wealth involves a series of logical steps and actions that aren’t super complicated.  While often easier said than done, the process involves basics: make, save, invest, and protect money.  Making sure that we pay the proper attention to each of the four areas,  and truly put our best foot forward in each of them, puts the odds in our favor.  A little bit of good luck doesn’t hurt either!

My Questions for You

Do you see things in this basic framework as well?

Do you pay each of these areas the proper attention, or do you need to improve on any of them?

Which area is your strong suit?

{ 9 comments… read them below or add one }

Little House January 27, 2014 at 8:58 am

I’ve always been able to make money. I’ve worked non-stop since 14, if I count babysitting, or 17 if I don’t. But saving and investing have been my downfall…until recently. I’m working really hard at focusing on those two since they are harder for me to achieve. Setting smaller, more management goals is working for me so far.

Reply

TTMK January 27, 2014 at 9:01 pm

It seems like you’re doing well with goals this year, from what I’ve read on your blog. It’s nice to see things off to such a good start for you in the new year.

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Nick @ Step Away from the Mall January 27, 2014 at 10:49 am

Boom. Yeah, I’ve always been a “simpler is better” guy, but didn’t apply it to my finances until recently. It’s pretty amazing how much better my finances became when I stopped overcomplicating things and just focused on basic building blocks.

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TTMK January 27, 2014 at 8:58 pm

Simple can be good, with money and many other things in life 🙂

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SavvyFinancialLatina January 27, 2014 at 11:30 am

We’re in the earning more, save more, spend less phase of wealth building.

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TTMK January 27, 2014 at 8:56 pm

Good for you guys!

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The First Million is the Hardest January 27, 2014 at 5:28 pm

I need to improve on the making money. I’m really good at the other 3, but my paycheck has been held back the past year or two due to the state of my company. That’s one area I’m looking to improve this year.

Reply

TTMK January 27, 2014 at 8:56 pm

You know, I hope I didn’t make that part sound easy. I know that it’s often much easier said than done. If we can increase income, it seems to me that this is where the big overall progress can be made – at least in our potential to build wealth.

Reply

Money Beagle January 28, 2014 at 9:49 am

Good stuff. I’ve been trying to concentrate more on the ‘making money’ side of things. You can only cut so many expenses but the opportunity for increased income has no limit!

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