This article from accountant Brandon Hall goes into detail about the wealth building process. Through his job as a CPA he has been able to “peer into the lives of financially successful men and women. In doing so, I’ve noticed trends in habits that these people possess and I wanted to share that with the world.”
He found that his wealthiest clients made their wealth in one of 3 ways:
- “They started, ran, and sold a business or multiple businesses.
- They were in a sales job that allowed them to quickly grow their income.
- They worked their way into a high-compensation job that always involved stock options.”
After making this foundational wealth “they then moved that wealth into real estate to create a consistent income stream and enjoy true financial freedom.”
So many people want to make wealth, which I certainly understand. I wanted to include this article to show that there is no secret to building wealth, its just a process. Make as much money as you’re comfortable with (preferably through a business) and then invest the money in assets that pay you consistent income over time.
I would think that Mr. Hall would agree that starting, scaling and selling a business is a much easier path to building foundational wealth than being a high paid employee. Here are the benefits as I see it from using business as your vehicle to creating wealth:
- Mindset – the mindset of the business owner is more in tune with wealth building. He is in the trenches everyday looking at alternatives, weighing options and allocating resources. The nature of business is investment – of time, capital and labor.
- Potential of outsized returns – if your business does well you can multiply your income and the value of the company. As an employee, your ability to scale up your income is limited, as income is usually tied to your production through time and labor, which is limited.
- Tax advantages – right now I think businesses are taxed at 21% and high earning individuals somewhere around 50%. Plus countless other benefits like write-offs available to businesses.
I do know a few high earners who have made foundational wealth, but from what I’ve seen, the mindset to further that wealth building process is absent, and the investment options available to them as a whole offer less opportunity.
Of the high earners I know who have made foundational wealth, none of them live richly. Their mindset is focused on saving, putting money into a nest egg to be used at some date in the future.
If you want to create wealth, build a business that throws off cashflow, scale it in an effort to get outsized returns and then invest that cashflow/foundational wealth into great investments.