How to Build Your Own Wealth System
The parts of a wealth system are simple.
How you connect them is where the art of design comes into play.
The mandatory components are:
Budgeting and reconciliation system
Income generating engine(s)
Asset and liability tracker
Savings fund
Essentially you need at least one wealth engine in your system. You need to be able to track the progress of your asset buildup (and your liabilities, too) alongside having a clean view of your expenses.
“It’s not what you make, it’s what you keep.”
Wise words. A legitimate wealth system will enable you to understand what you think you are spending money on, what you really are spending money on, and the accuracy of these forecasts over time.
Budgeting and Reconciliation System
This is the control center. It needs to be a system you can stick with. Consider using budgeting apps, spreadsheets, or a combination of tools.
Regular reconciliation (comparing actual spending to your budget) is key to identifying areas for improvement and adjusting your plan.
Being able to see your expenses for this month in real-time vs last month, or the same month last year… that is priceless intelligence.
Income Generating Engine(s)
Diversification is key here. Multiple income streams create resilience and accelerate wealth building.
Focus on both active income (requiring your time and effort) and passive income (generating income with minimal ongoing effort).
Asset and Liability Tracker
This provides a clear picture of your net worth.
Track the value of your assets (investments, real estate, etc.) and liabilities (debts).
I’ve been using Monarch Money to track my expenses and also visualize my portfolio vs the market.
Use this information to make informed decisions about debt reduction and investment strategies.
Savings Fund
This is your financial buffer for emergencies and unexpected expenses.
Automate regular contributions to your savings fund to ensure consistent growth.
Consider different types of savings accounts for different goals (emergency fund, short-term goals, etc.) this way the chances of “accidentally dipping into your emergency fund for this great investment opportunity” go down.
The Art of Wealth System Design
Remember, the art lies in how these components connect. This is where personalization comes in.
You need to build your system based on your capabilities, your resources, your objectives and so much more — here are design elements to consider:
Automation: Automate savings, bill payments, and investment contributions to streamline your system.
Optimization: Regularly review your system to identify areas for improvement. Are there expenses you can reduce? Can you increase your income? Are your investments aligned with your goals?
Integration: How do the different components work together? For example, your budget should inform your savings and investment contributions.
Mindset: Cultivate a wealth-building mindset. This includes being disciplined, patient, and focused on long-term goals. Systems give you discipline even when you don’t feel like it.
Automation is like putting your wealth-building on autopilot. It takes the manual effort and emotion out of tasks like saving, bill payments, and investing by leveraging technology to perform these actions automatically. This ensures consistency and discipline, ultimately leading to better financial outcomes. For example, you can set up recurring transfers to your savings and investment accounts so you consistently save a portion of your income without having to think about it. You can also automate bill payments to avoid late fees and maintain a good credit score.
I use a great deal of automation in my SaaS work. Our businesses automate prospecting and client outreach. With tools like Zapier and other orchestration platforms it has become very easy to build incredible amounts of operating leverage.
You can also use these tools to optimize.
Optimization is all about fine-tuning your wealth system for peak performance. It involves regularly reviewing your budget to identify areas where you can reduce expenses or allocate funds more effectively. You should also periodically evaluate your investment portfolio to ensure it aligns with your risk tolerance, time horizon, and financial goals. This might involve rebalancing your portfolio or adjusting your investment strategy. Optimization also extends to debt management, where you explore strategies to pay down high-interest debt faster. By continually optimizing your system, you maximize returns, reduce costs, and increase efficiency in achieving your financial goals.
Integration is the glue that holds your wealth system together. It ensures all the components work together seamlessly, creating a cohesive and interconnected system. This means your budget should inform your investment contributions, and you should track both income and expenses to have a clear picture of your cash flow. It's also crucial to monitor both your assets and liabilities to understand your net worth. By integrating all aspects of your financial life, you gain a holistic view, enabling better decision-making and increased efficiency. Ultimately, integration ensures all your financial activities are aligned and working harmoniously towards your overall wealth-building goals.
By thoughtfully designing and continually refining your wealth system, you can create a powerful engine for achieving your financial goals.
Start your system by getting these four components up-and-running. That's when you can begin to optimize and automate.
Happy building!
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