In a couple of posts, I’ve concentrated on defining the concept of assets and liabilities https://thefinancialstoic.com/wp-admin/post.php?post=223&action=edit as they both relate to the overall wealth building strategy.
I TOTALLY understand that these are different definitions than what you would find out there on the Internet and even within academic courses on personal finance.
Traditional personal finance isn’t wealth building
What you have to FULLY understand and appreciate is that generic personal finance is NOT wealth building.
In fact, I would argue that it lays some of the seeds that germinate into the default operating system that many of us grew up with that perpetuates consumerism, working paycheck to paycheck and working for somebody else.
Building wealth is not a conventional default setting
In wealth building, we don’t do those things and we don’t define OUR financial pursuit in the same way as those who follow that conventional default path. Far from it. In fact, we define things that appear to look similar but are actually in very, very different terms.
We define these activities through the extremely harsh light of wealth building and by doing so, expose a totally different aspect of what would otherwise appear to be the same ‘ingredients’ found in personal finance.
Traditional financial planning focuses on budgeting
Let me explain by using an example. Traditional personal finance focuses on budgeting as its primary and most essential building block.
As a concept, I don’t fault that approach but here’s the NOT SO subtle difference; from a traditional personal finance approach budgeting is done so that you can pay your bills and someone else first and then have whatever is left over.
Budgeting to create a gap
The NOT SO subtle difference is that in wealth building we budget so that we can create a gap between our income and expenses and automatically pay OURSELVES first by investing that gap and then paying everyone else later! It seems like the same thing but it’s arguably a completely opposite approach.
What I want to make crystal clear is that there are many different levels to wealth building. As you well know, these are based on the amount of resources we have, how much time we have to invest, how much energy we can expend and the level of risk we are comfortable taking.
Just like in most practices or pursuits, the extreme example of them definitely lays out the principles and concepts in a way that are very simple to understand. Notice that I didn’t say easy to follow. I said easy to understand.
Extreme wealth building
The extreme level of wealth building would look something like the following: Develop a skill that is extremely valuable and in high demand out in the marketplace, pay the absolute minimum amount for your housing, transportation and furnishings
Better yet, don’t own ANY non-income generating assets (including a single-family house) https://thefinancialstoic.com/wp-admin/post.php?post=161&action=edit, keep your living expenses to the absolute bare bones, automatically pay yourself upfront the largest amount each month that you can afford to and then add 10% more to that.
Then automatically invest that amount every month into an asset that will generate income and appreciate in value over time. You get the picture!
In its most simplistic form this would be called the ‘total income generating asset life’. Let me go even further to define this point as clear as I can.
Avoid anything that takes away resources from building wealth
In a ‘total income generating asset life’ the pursuit is to basically avoid anything that would take resources, both financial and your time, away from being invested into income generating assets.
For example, as I have identified in the past when it comes to housing an individual would want to purchase a multi-unit dwelling where at least one unit was completely offsetting the cost of the unit they occupied.
In an even better scenario, one unit would offset the cost of their unit and other units within the structure would create a overall positive cash flow for the individual.
In that situation, the individual would ‘theoretically’ not be paying for their housing because it is being offset with someone else’s financial resources.
Incorporate a business to turn liabilities into assets
In another example of a ‘total income generating asset life’, an individual would create an incorporated business to own items that would otherwise be straight out expenses to that person.
In the past I have used an example of a friend of mine who owned all the recreational ‘toys’ everyone wants…snowmobiles, kayaks, boats, four wheelers, etc. and she owned these through an outdoor guiding and recreation business as income generating assets.
This obviously expresses what would otherwise look to be an extreme example of a total income generating asset life but what it does is drive home the point as to how important it is to use your financial resources on items that in exchange further grow your wealth.
As extreme as it sounds, if an expenditure of a resource is not helping to grow your wealth, it is an expense! Pure and simple.
Now what I find truly interesting is that when you talk about such ‘extreme’ measures as to what people took to excel in acting, music, art, sports or other such ‘talent derived’ pursuits, people make the observation that those people were simply committed to their cause.
Why is it when people carry that same level of intensity in their lives to build wealth they’re somehow categorized as being ‘extreme’? I would argue that it’s because it’s so rare nowadays on average to see an individual intensely focused on their financial well-being. In today’s popular consumerism culture it’s downright weird!
To build extreme wealth you need to take extreme measures
The truth of the matter is that in order to build extreme wealth…here it comes…you’re going to have to take extreme measures. That’s how it works. Or if not, it’s just going to take a lot more time even if you’re taking the right measures but just not enough of them, so to speak.
It may be true in the popular culture that we live in today that being intensely focused on building wealth would appear to be extreme.
However, what is the downside with the outcome of being financially secure, or even might I say financially independent, a decade or even two decades before most people get there? Is it having options? Having financial security? The ability to live your life on your own terms?
That sure doesn’t sound extreme to me. In fact, I find that downright comforting!
