Wealth Building Principles

wealth building principles

Even before you start building a business, it’s important to understand the underlying philosophy that will help you establish wealth and keep it.

How many times have we heard of stories of famous athletes, rappers, or actors that went from being uber-wealthy to losing all their money once the income stopped flowing in?

This is not a one-off story that only affects the famous — It can happen to you too if you don’t establish the right mentality and wealth philosophy. No matter how much money you make, you’re at risk of losing it all if you DON’T get these points right.

What we’ll cover today is not the nitty-gritty of business strategy and investments, but rather, the underlying philosophy that helps build wealth.

Alright, let’s get started!

Have a Long-Time Preference

Don’t give in to the allure of short-term gratification. It might seem tempting to buy that shiny new object that you’ve been wanting, but it’s more beneficial to you if you use that money and invest it in long-term investments. Stop thinking short term and start thinking long term.

Limited Association

Associate yourself with a crowd of people that have the wealth and values you desire. It’s said that “You are your 10 friends.”

If you want to lose weight, it’s probably not a good idea to hang out with friends that are all overweight. You’ll get pulled into making bad eating decisions that ultimately go against your goals.

It’s the same with wealth building. If you hang out with friends that are broke or don’t have the same aspirations as you, you’ll spend your time on activities that don’t increase your wealth. You’ll discuss things that don’t bring you closer to your goals.

“Show me your 10 friends and I’ll show you your future”

Focus on Generating More Income Than You Spend

Some are believers in simply trying to save as many pennies as possible in everything they do. Yes, spending wisely is important, but It’s more important to create more wealth than try to skimp on everything. If you make $100,000, at most you can save $100,000. That’s great but if your efforts are on making more money WHILE learning to control your spending, you have more potential.

If person A focuses on just saving every penny of his $100,000 annual income, he’ll have $100,000 by the end of the year (given that he has absolutely no expenses – it keeps the example simple). His max savings is capped at $100,000. However, if person B focuses on making more money instead of passing up his morning Starbuck’s coffee, his potential is unlimited. There is more upside to making more money.

Live Below Your Means

This coincides with the previous statement — Don’t spend money that you don’t need to. Use the money to enjoy but know every dollar spent means you aren’t investing it in passive investments or in your business.

If your personal spending increases as much as your income grows, you DO NOT grow your wealth. You make active income so that you can turn that income into passive income. If you spend all your hard-earned money, you’ll never make easy earned money (passive income).

Time is More Important Than Money

Time is essentially money. However, time is finite and money is unlimited. At the beginning of your wealth-building journey, you usually trade time for money. Over time, you want to trade money for time. If you can, outsource everything that doesn’t allow you to maximize your time.

This is probably the hardest thing for people to implement. We think that some things are easy to do so we should just do it ourselves to save money. This might sound financially counterintuitive but you mainly want to focus on the areas where you can maximize your personal potential.

Yes, you might be able to do all the small chores around your house or you could hire someone to do it. It might cost you $100 dollars that day BUT if you spent that saved time on your highest-impact work, you could earn more than that.

If we took this example to an extreme, imagine if Jeff Bezos spent all his days cleaning the facilities of all Amazon warehouses. Yes, he wouldn’t have to pay someone to clean the facilities BUT how much is he losing in opportunity cost? He could have spent that time making multi-billion dollar decisions at the highest level. He saved a couple of thousand dollars but forfeited billions. Sounds pretty stupid right?

You might be saying, “Well I’m not Jeff Bezos making that much money.” Yes, that’s probably true but you’ll never get close if you spend time on areas that aren’t increasing your own personal value. Instead of wasting time on money-saving tasks, it’s more valuable spending that time increasing your personal value by learning new skills, honing existing skills, or doing tasks that only you can do.

Read and Learn a Lot

Whether you’re a reader, listener, or watcher, continue to focus on learning to increase your personal value. Generally, you want to have a breadth of knowledge in important subjects but hone in on specialized knowledge/skill.

Charlie Munger, Warren Buffet’s partner, calls this breadth of knowledge mental models and it allows you to make better decisions. You don’t need to understand every nuance of microeconomics, mathematics, philosophy, etc but understanding the most important key principles will help you make better choices in the long run. It provides the mental backdrop to better decision making because you understand core principles that govern our world.

As you build your breadth of knowledge, honing in on your particular subject area of expertise will greatly increase your value add. The more value you add the more you can get paid. For example, maybe you’re really good at technical marketing skills like SEO optimization, then you should continue to raise your SEO optimization skills and outsource administrative things you aren’t so good at like book keeping.

The more specialized your skill, the more value you can draw IF the specialized skill is desired. Take neurosurgeons, for example, they have a highly specialized skill set. They can charge a significant amount of money because not that many people can do what they do. Contrast that with a fast-food employee. There are hundreds of millions of people with the skill set to serve food. There are many times more supply of fast-food employees than neurosurgeons. If you understand supply and demand (microeconomics principle) then you’d understand why neurosurgeons get paid so much more. High demand, limited supply.

Use Leverage

Leverage is your wealth building friend. Three of the primary forms of leverage are capital (money), technology, and people. These forms of leverage allow you to multiply your output.

Money can be used in multiple ways to increase your own earning potential. For example, if you only use your personal money, let’s say 100k, and you received a return of 10% in an investment, you would make 10k. However, if you raised money from investors of 900k, you now have 1 million to invest. If you made a 10% return and charged everyone a 20% management fee on profits, you’d make 28k (10k from your own invested money and 18k from your management fee). Instead of a 10% return, you made an ROI (Return on investment) of 28%.

Technology reduces the amount of work you personally do, automating many things. You can use technology tools to increase your productivity or you can even create software that you can sell an infinite amount of without increasing marginal cost per item sold.

People are another form of leverage. Instead of you doing certain administrative tasks yourself, you can outsource your work to a virtual assistant. Instead of creating a website, you can hire a website developer. That’s why companies with lots of employees can create so much value. The founder of the company reaps those leveraged benefits.

Take Care of Your Health

Health really is wealth! If time (in terms of labor) is interchangeable with money, then by you being healthy and having more time to work, the more money you’ll make. Simple enough.

However, wealth building isn’t a sprint. If you work yourself to death, well… game over. You obviously don’t have more time and money doesn’t even matter anymore at this point. Even if you don’t kill yourself from stress and overworking, you’ll greatly decrease your ability to make sound decisions if your body is falling apart. You’ll spend more time in hospitals, energy levels depleted, and lose confidence.

There is just no win with not taking care of your health.

Find Something at the Intersection of What You Love to do and What The Market Will Pay For

Finding something you love will allow you to create your best work and work at it sustainably for long periods of time. If you find your unique angle that coincides with your unique abilities and passions, it’s going to be very hard for anyone to compete against you. Your work will feel like play.

It also needs to be a passion either a few people pay massive fortunes for OR millions/billions of people are willing to buy at an affordable price point.

The Quickest Path to Fortunes is Being a Business Owner 

To build wealth, the fastest path tends to be a business owner. If you are just an employee, you make what the boss will pay you. Even though doctors might make hundreds of thousands of dollars, if they aren’t owning their own practice, investing in companies, or getting equity somewhere, they’ll stay in the middle to upper-class echelons.

It’s okay to have a job as long as you’re using that income to make investments or building a side hustle where you have ownership in it.

Robert Kiyosaki explains it best in his cashflow quadrant example.

Princess 1
Cashflow Quadrant

To build wealth, you need to get onto the right side of the quadrant as a business owner or investor or both. Employees and self-employed are usually time and income bound. They trade hours for dollars. It’s usually a 1:1 ratio. I spend 1 hour at work, I make $30 dollars.

The difference between self-employed and business owners is that there isn’t a direct correlation between hours work and income gained. Self-employed are stuck at their place of business. Business owners create systems that allow them to not be at the store while things are still running. The business owner might not even step foot into the store and make $10,000 that day.

Not a 1:1 ratio.

How Wealthy Do You Want to Be?

Determining the level of financial wealth and time frame of your wealth creation helps you hone in on what you need to do to get there. Your wealth objective and time preference will determine your wealth creation strategy. The amount you’re trying to create will determine the types of endeavors you take on. The time frame will determine the effort at which you pursue these endeavors.

If you want to be a billionaire in 5 years, you wouldn’t work just a job full-time paying the minimum wage. You’d probably decide to start a startup with the potential to be worth a billion dollars. If you just want to have 1 million in the bank account in 40 years, you’d work a stable job and invest in your 401k plan.

Your plan will determine your general direction. It might not happen exactly as you planned, but without a plan, you’ll be at the mercy of what other people want you to do.

Your financial goal and time frame will most likely shift as you discover your desired work-life balance. Some people might not realize the work they need to do or the person they need to become to be a billionaire. They might discover later on it’s not what they want and that’s okay. But having defined objectives helps you better determine what you want.

Develop Grit

Grit is the biggest determinant of someone becoming successful or not. If your aim is to be wealthy, then grit will be your biggest ally. Angela Duckworth, known for her research on grit describes it as “passion and perseverance for long-term goals.”

If someone wants something bad enough and will continue to persevere through any obstacle, it’s more of a matter of time before they reach their objective. This obstinate pursuit of your goal despite setbacks is the key to wealth. Instead of giving up at the site of setback, if you’re gritty, you’ll continue to learn and readjust until you get the formula right. You do this long enough, you’ll eventually get where you want to go.


Understanding the principles that govern wealth building are important to not only build wealth but also to keep it and grow it over time. It would be in your best interest to understand some of these principles to set your foundation properly as you continue your entrepreneurial journey.

Good luck and let’s go get this bread!

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