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The Steps to WealthI just finished reading The Richest Man in Babylon.  I had a lot of recommendations to read this and I’ll tell you that, for as old as this book is (originally published in 1926!!), the content still holds strong.  Great book if you’re trying to find your way to wealth.  There is some very sound advice that stands the test of time, such as saving at least 10% of what you make and that you can live off your income, but you can’t get wealthy off of it.

Oversimplified?  Maybe.  But it’s a very good read and that simple advice might just be what people need.

But it got me thinking, and based off of what I go out of that book as well as what I’ve learned thus far throughout my journey, I thought I would put together what I would consider to be the steps to wealth.  Drumroll, please…

Get a high-paying job

… at least as high as you can.  Yes, you can work your way to financial freedom and wealth with a lower-income job, but obviously it will be much quicker if you’re bringing in more money.  The challenge is to find a high-income job doing something you like.  I was very lucky… I was actually a studio art major in college because I have a little bit of talent in that area.  One day while taking my semester final for an art class, I decided I couldn’t do this for a living.  I didn’t want anyone telling me what I had to draw and how I had to do it.  I realized art was a hobby and not something I wanted to do as a job.  I walked out in the middle of the final.

And that turned out to be an excellent decision.  It was still the early days of the computers and the Internet and I took an interest.  Eventually I graduated with a major in Computer Information Systems.  I ended up moving into the same job that I’m in today as the manager of the Systems Engineers at my company.  Although there are plenty of higher paying jobs out there, the salary is still pretty good.  And it’s in a field that I enjoy.

That has enabled me to accumulate wealth faster and accelerate my timeline to financial independence.

Ok, this isn’t an absolute necessary step, but it can definitely help you get ahead quicker as long as you don’t spend what you make.  If you can find something you enjoy that pays pretty good, go after it.  Anything can be learned, but you need to be the one to pursue it and make it happen.

Get out of debt

You’re never going to find your way to wealth if you’re soaked in debt.  You can use every excuse in the book when you’re sitting in debt, but the only solution is that you need to dig yourself out of it.

I get it.  I’ve been there.  I was almost $30k in credit card debt when I graduated college.  I then discovered Quicken and when I got all my information entered, I was in awe… and then almost threw up.

But I took action.  I buckled down and worked my %^& off until I got it paid off.  Am I bragging?  No.  I just want to tell you, if you’re in debt and paying the minimum on your credit card balances, you’re getting sucked into a black hole.  The system is designed to ensure that you’ll be paying forever.  You need to accept this and stop buying crap.  Figure out how to stop spending money frivolously and get your debt paid off.  Stop justifying and just make it happen.  Debt can eat you alive.

Live below your means

What does it mean to live below your means?  It means that you don’t try to live the champagne lifestyle on a beer budget.  Do you really need that ritzy house in the best neighborhood?  Is that expensive sports car really that important?  Do you absolutely need to always have the biggest TV or the latest cell phone?  These are the things that hold a lot of people back.  They want.  They want and want and buy a lot of doodads that do nothing for their future.  Impressing people is not what it’s all about when playing the wealth game.

I’m currently reading the The Millionaire Next Door (another excellent book) and the author recommends a quick rule of thumb.  Multiply your age by your current pretax income and then divide by 10.  The answer is a gauge on what you should have put away.  So if you’re 50 years old, making $75,000, your calculation would look like this:

50 x 75,ooo = 3,750,000

3,750,000 / 10 = $375,000

So this 50 year should have a net worth of $375,000.  If he doesn’t, he’s an income earner and not a wealth builder – not good.  This isn’t the end-all be-all and I honestly think this isn’t a strong enough formula, but at least it’s something to start with if you’re a beginner on this path and can be a wake-up call if you come up short here.

The more you can live below your means, the more wealth you can accumulate.  There are always ways to cut costs – your job is to figure out where.  Start with the bills that will save you the most or that are the easiest to fix and work your way down.  Cable bills, insurance, utility bills, car payments, etc.

Save… a lot

In The Richest Man in Babylon, the recommendation is to save at least 10% of what you make.  I agree wholeheartedly with this.  Not just the 10% minimum, but also using a percentage over a specific number.  I like that because if you have a percentage taken out of your paycheck for your 401(k), for example, when you get a raise, that amount you contribute goes up automatically with no intervention from you.

The minimum of 10% is also a good start – maybe I should say that again – it’s a good start.  10% will help you build up a nice savings.  However, you’ll find that most of us in the financial independence community are contributing a lot more than that to be able to quit the 9-5 earlier in life.  Mrs. R2R and I are currently putting aside around 35% of our income.  I push at that number as much as I can and it really irks me that it’s not higher, but it’s still not too shabby.

Make your savings work for you

So saving is great, but if you just stick the money under your mattress, it makes it all the more difficult to accumulate enough wealth.  That money just sitting becomes less and less valuable because inflation keeps chipping away at what you have.

So how do you get keep from losing money that sits there?  You need to put your money to work.  That can be a hard thing for savers.  We want to keep our money safe, but we also want it to grow.  The problem is that the two usually contradict each other.  It’s hard to have growth without risk.

There are a couple of ways of making your savings work for you.  You can look for appreciation or cash flow.  Investing in mutual funds in the stock market is one way to do it… the old “hold and pray” method.  Hey, I’m not judging – most of my 401(k) is stuck in that lousy setup, too, but the idea is that it’s better than nothing.  Unfortunately, that’s a time-will-only-tell scenario.

The other side of the coin is cash flow.  Buying dividend stocks or real estate rentals or other assets that regularly pay money back to you can be a solid option and one in which I’m starting to put more of my money to work.

Continue learning

The saying “knowledge is power” is right on target.  I’m very surprised by the smart people I know that understand so little about money and investing.  This is one area where you can never stop learning.  The more you know about the nuances of how to make money work for you, the more opportunities will seem to jump out in front of you.

Books, websites and blogs, podcasts, seminars, etc.  There’s a ton of great options out there – find them.  And, of course, there’s real world experience.  Find a financial mentor who wants to share what they know and latch on.

I try not to make everything I do revolve around money and wealth, but I do think it’s extremely important.  I’m always reading and try to rotate between money/business books, other non-fiction books, and fiction books.

On a side note, I want to stay informed as much as I can, but a good fiction book can help relax you a little bit every now and then as well.  If you’re looking for a good next book to read, I can’t speak highly enough of Wool by Hugh Howey – everyone I have recommended this to, male or female, loved it.


So there you have it – my steps to wealth.  Hopefully, you’ve already looked at this list and had a lot of “yup, already doing that one and that one and that one…”  If so, you’re well on your way to financial independence and great wealth.  If not, it’s time to reflect and get yourself on track.

What about you?  Do you agree with these or have any other steps you might add?

Thanks for reading!!

— Jim

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The Steps to Wealth
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27 thoughts on “The Steps to Wealth

  • May 24, 2016 at 8:54 am
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    Totally agree.

    I do think the biggest challenge is living below your means, especially with a high-paying job. It’s ironic that the more you make, the more you want to spend. But if you can manage to keep your expenses flat while you grow your income, you can quickly save.

    Reply
    • May 24, 2016 at 9:45 am
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      Dead on – I see a lot of people that I’ve known for years that increased their lifestyle as quickly (if not quicker) as they started making more money. They’re going to look back and think, “crap, what the %^&* happened to all my money I made!!” and likely be up a creek later in life.

      — Jim

      Reply
  • May 24, 2016 at 1:42 pm
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    The one thing I would like to add… Life your ideal life already now…
    I mean that you need to check that the lifestyle you are living now suits you for a long time. In an ideal world, you live with the expenses/life style/experiences you are willing to life in FIRE already now.

    Reply
    • May 24, 2016 at 5:17 pm
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      That’s a great point!! If you’re not happy with the way things are now, you definitely need to work on that as well!

      — Jim

      Reply
  • May 24, 2016 at 2:23 pm
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    Good post Mr. Route! I’ve read both of those books. Babylon, is an entertaining read, but the Millionaire Next Door is a far better book. Definitely a worthwhile read! I’ve recommended it on my website as well.

    Interestingly enough, I had a couple extra steps when I posted a similar article a few months ago (http://www.mrtakoescapes.com/2016/01/13/rise-up-from-wage-slavery/). Building multiple streams of income was a very important step, as well as learning to have fun without spending!

    Reply
    • May 24, 2016 at 2:27 pm
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      Oh, I forgot something — You mentioned reading Wool. I second that recommendation. Great book! Anything by Hugh Howey that I’ve read has always been great.

      Reply
      • May 24, 2016 at 5:33 pm
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        All three of the books in the Wool series are definitely awesome! I accidentally stumbled onto those books and I’m glad I did. He’s got a real talent for writing.

        — Jim

        Reply
    • May 24, 2016 at 5:32 pm
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      I just checked out your link – great post from you as well!! You definitely hit the nail on the head regarding multiple streams of income. I might add that multiple streams of passive income are even better! I also like your point on learning to have fun without spending – that’s an “art” that’s definitely been lost with most of our society.

      — Jim

      Reply
  • May 25, 2016 at 10:16 am
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    Hi pal,

    That book (TRMIB) was the book which really turned my life around when I was around 23 years old. To this day I don’t know how I actually came across it but I got through it in a few hours and then read it again right after. I read it fresh out of Uni, and I will be forever grateful that I did, I know it has already had a massive positive effect on my life and will continue to do so.

    Soon after reading this book I started working towards paying myself 10% first, and I was paying another 10% off my loans. It started me onto a path where I now save 50%+! !

    And, a piece of information I have not revealed anywhere – My blogs name is influenced from this great book and one of the characters ; ) .

    “knowledge is power”
    Best of luck
    R

    Reply
    • May 25, 2016 at 10:24 am
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      That’s fantastic! Nice job saving over 50%! I really enjoyed that book (wish I knew about it in my twenties though!!). My eye-opener was Rich Dad’s Prophecy and then The Cashflow Quadrant. I guess in the end, it doesn’t matter what book ended up changing your life as long you find one that does!

      That’s cool that you named your site after Rodan in the book – I kind of feel like I’m “in the know” now! 🙂

      — Jim

      Reply
      • May 25, 2016 at 10:43 am
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        Cheers Jim

        I’ve not read the Cashflow Quadrant yet but I have just put it on the Wishlist on your recommendation . I did read Rich Dad, Poor dad last year which I enjoyed, are both these books a follow on from that one?

        Reply
        • May 25, 2016 at 11:09 am
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          All of Robert Kiyosaki’s books tend to have some overlap to them, but I find most of them to be enjoyable, straight-forward reads. Rich Dad’s Prophecy was actually written in 2002 and focused on how the economy and the market could tank around the year 2016, which we’ve had and there’s still plenty of time this year for it to happen again! 🙂 Cashflow Qaudrant is a great read that puts into perspective why and how the rich work/invest versus the way employees and small business owners do. That book really got me to think more as an investor and helped me to just get it… I strongly recommend it!!

          — Jim

          Reply
          • May 25, 2016 at 12:00 pm
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            Thank you Jim, hopefully I get started on Cashflow Qaudrant shortly (Holidays lined up next week which might work out well) I’ll let you know how I get on with it.

            Cheers
            R

  • May 25, 2016 at 4:53 pm
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    I totally agree with the overall sections you outline for the path to wealth, I feel each one of them is actually worth its own post.

    Reply
    • May 25, 2016 at 5:30 pm
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      Ah, an idea man… I like that!! 🙂 Looks like I have some work ahead of me!!

      — Jim

      Reply
    • May 27, 2016 at 9:02 am
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      I think there are a lot of us that wished we had done these things sooner in life. The good news is that if you’re working on doing them now, you’ll be further ahead than most people!

      — Jim

      Reply
  • May 29, 2016 at 9:00 am
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    This is my favorite financial book! It is timeless and the parables are great! The book should be read and reread over and over again. Arkad is a great teacher.

    Reply
    • May 29, 2016 at 9:34 am
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      That’s so true – in fact, any additions they can make for kids financial education would be beneficial.

      — Jim

      Reply
  • May 29, 2016 at 6:25 pm
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    Extremely relevant advice RTR, without working on each of those steps, there is no way one can make it to FI. The earlier people turn on the ‘save/live below means’ switch, the more they can invest throughout their lives (which can then actually pay them money to live off, making it even easier).

    Tristan

    Reply
    • May 29, 2016 at 9:31 pm
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      Absolutely right – I wish I had started earlier as well! I’ll be sure that my daughter understands that concept much sooner than I did.

      — Jim

      Reply
      • May 29, 2016 at 10:15 pm
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        Exactly. Hopefully starting reasonably young (I’m 24, my wife is 23) means we can really get ahead before FI even is a twinkle in 30 something’s eyes.

        Tristan

        Reply
  • May 30, 2016 at 10:44 pm
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    Dead on! Those pieces of advice are the pillars of my financial plan. Living below your means is crucial and is a huge help for those who do not have a high paying job and are looking for ways to scrape money together to pay down debt.

    I’m adding this book to my reading list! Looking forward to checking it out.

    Thanks for sharing!

    Bert, One of the Dividend Diplomats

    Reply
    • May 31, 2016 at 8:11 am
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      Thanks, Bert! Great to hear that you have a solid financial plan.

      I know a lot of people who want to build their wealth, but can’t get past living below their means.

      Hope you enjoy the book!

      — Jim

      Reply
  • February 3, 2017 at 5:37 am
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    A high income definitely helps, however apart from the job I am in now, the jobs I’ve been in where I’ve earnt the most amount of money, I’ve been the most unhappy. I think for quality of life a good balance is needed! 🙂 Some really great tips though – thanks for sharing!

    Reply
    • February 3, 2017 at 1:37 pm
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      Thanks, Vicky! You’re definitely right about the balance because your health and happiness are the most important. I’m at a company where I make a very good living. I could make a lot more if I left and went to another company, but I like where I’m at and that’s important.

      But on the flip-side, it’s costing me time. I could probably reach financial independence much quicker if changed companies.

      So although a high-income isn’t the end-all, be-all, it’s still an important step to take if possible.

      — Jim

      Reply

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