Do you dream of a life where you don’t rely on your W2 income to survive? You’re not alone. The concept of financial freedom has only grown in popularity in recent years. Financial freedom means different things to different people. Some crave the freedom to set their own schedule. Others want the ability to pick up and quit their day job. No matter your ultimate goal, all concepts of financial freedom have the same root: A foundation of wealth.
Maybe you feel like you don’t have enough cash to invest in anything other than small-time stocks or mutual funds. Maybe you think building wealth is out of reach for you. Maybe you just don’t know enough about investing, and you’re unsure where to start. If any of these sound familiar, this is the post for you.
This post will give you a head start by providing a knowledge foundation that you can leverage to accelerate your wealth-building journey. Let’s get started.
What Does It Mean To Build Wealth?
Before we dive into our top tips for beginning your wealth-building journey, let’s first establish what wealth is.
Wealth is the sum of all the assets you own, minus any debts you owe. That definition sounds awfully clinical, and it leaves out a lot of essential details. For example, what qualifies as an asset? How do you know what those assets are worth so you can compare them to the sum of any debt you have?
Assets are anything you own that you could convert into cash. In other words, things you own that you can sell. We commonly think of houses, boats, or stocks, but artwork, collectibles, and cryptocurrency are also included.
Important note: Not all assets are created equal. Some assets, like boats and cars, should be considered liabilities, as they depreciate over time instead of helping you gain wealth.
Robert Kiyosaki, the author of Rich Dad Poor Dad, uses a different definition:
"Wealth is a person’s ability to survive X number of days forward.”
In other words, how secure is your future? If you lost your job tomorrow, how long would you be able to keep paying all the bills? The answer to that question gives you an idea of your current level of wealth.
When the average person thinks about investing, the first thing that comes to mind is the stock market or other publicly traded assets. Ready for a hard truth? If you’re looking to build enough wealth to gain financial freedom, stocks aren’t enough.
To build substantial wealth, you’ll need to invest in public assets, like stocks and bonds, and private assets, like real estate. According to Alto IRA, high-net-worth individuals allocate between 25-50% of their investments toward private assets. Of course, the issue most people run into here is that private assets have much higher capital barriers to entry than public assets… but don’t worry, we’ll give you tips for crossing that hurdle later on in this post.
The idea of building wealth can seem intimidating, but it doesn’t have to be. Tribevest’s mission is to make wealth-building accessible to everyone, not just the rich. Our unique platform makes it easy - and fun - for investors of all experience levels to pool resources with friends and family and diversify their portfolios. Ready to kick off your investing adventure? Read on to learn how to get started.
Develop a Process for Saving
Let’s be clear; saving isn’t the same as building wealth. However, you’ll need to have enough capital to start buying wealth-building assets, and to do that, you’ll need to save up enough capital to buy your way into high cash-flowing private assets.
For example, if you’re interested in investing in real estate, you’ll most likely need enough cash to put 30-35% down to make the investment worth your while. Take a peek at this list of average home prices by state. Do you have enough cash on hand to cover that? If not, that’s okay. That just brings us to step one of your wealth-building process— getting your savings in order. Need tips and tricks for saving efficiently? We have you covered. Let’s go over five tactics you can use to save like a pro.
Download a Savings App
Whether you’re new to saving or naturally thrifty, downloading a savings app is a great way to organize your plans to save enough money to start investing in high-value assets. An app like Qapital is excellent if you have specific goals in mind, and Acorns is an excellent tool for prepping for your investment-filled future.
Once you’re ready to get started on your investing journey, you can utilize Tribevest directly to set aside that capital you’ve saved up—and more! Our Manageable Monthly Contributions allow you to link your bank account and automatically set aside money for investing in wealth-building assets.
Manage a Separate Savings Account
When we say we recommend managing a savings account, we don’t just mean a regular savings account at your bank; we suggest a completely separate account just for saving.
Why do we recommend this? Let’s put it this way: When you start a business, you open a business bank account to keep your personal funds and your business funds separate. What we’re proposing here is a similar arrangement. Your savings-specific account is for the money you put aside for investing, whereas your regular bank account is for living expenses.
This separate account acts as both a physical and mental separator. It makes it easier to keep squirreling money away for future wealth-building assets without feeling tempted to spend it here and now.
Utilize Direct Deposit
Ever heard the saying, “out of sight, out of mind”? When you use direct deposit, this can apply to your savings! Remember that separate savings account we set up in the last section? Our next tip is to automatically deposit a portion of your paycheck into that account each pay period.
Using direct deposit makes it easier to consistently save the same amount each pay period. If your monthly spending goes as planned, you won’t even feel the sting of losing those funds to your savings fund because you won’t even see them hit your usual bank account balance.
And, of course, if an emergency happens, those funds are still available and accessible in your separate savings account, ready to save the day.
You can use apps like the ones mentioned above or Tribevest to automate this process for you.
If you’re planning to build wealth, you probably already know budgeting will be an essential piece of the puzzle. You need to pay all your regular expenses, so how can you determine how much you can afford to set aside to build investable capital? This is where we do some math.
What is a budget? Simply put, your budget is your estimated spending limit for a certain period of time. It sounds simple enough, but anyone who has attempted to build a budget knows it’s a lot easier said than done. With that said, let’s go over a few of our top tips for setting and sticking to a budget.
- Calculate Your Monthly Income:
Your budget involves the amount of money flowing out of your bank account, but to set that figure, you’ll first need to know exactly how much money is flowing in. Add up all your income sources (minus taxes) to determine the dollar amount hitting your account each month.
- Get Your Spending Baseline:
A common mistake people make when setting a budget is that they try to budget before knowing their current spending. Before creating your budget, track your spending for an entire month. You can do this manually with a spreadsheet or using an app. Apps like Mint and Personal Capital can help you track your spending and are free.
- Choose a Budgeting Method:
You can budget using any one of these several different systems. The first common method of budgeting we’ll discuss is the “zero budget” system. This system divides up your entire income into specific categories (expenses, debt, savings, etc.), with the goal being to have zero unallocated dollars each month. You can also use a plan like the 50/30/20 plan. This type of plan allocates 50% of income to expenses (“needs”), 30% toward miscellaneous expenses and “wants,” and the final 20% for savings.
Once your budget is set, you’ll need to keep a close eye on your spending and adjust your habits appropriately. The best way to accelerate wealth building is to maximize and invest cash flow. By reducing your expenses and finding creative ways to increase your income, you can stretch the difference between the two, which generates additional cash flow to invest.
Pay Yourself First
Depending on how far you are in your quest to build wealth, you may have heard this phrase before. The concept appears in wealth-minded books like Rich Dad Poor Dad and The Richest Man in Babylon.
“Pay yourself first” refers to a specific mentality related to investing and retirement planning information. In short, this strategy means you allocate funds to your savings or investment account before you pay monthly expenses or make miscellaneous purchases.
Pay yourself first is a mindset shift away from approaching wealth-building reactively to approaching it proactively. Much like the separate savings account we discussed above, you should allocate funds directly from your paycheck to your investment accounts if possible. This removes the temptation you may have to skip a pay period and devote all your income for that period to expenses alone.
To sum up, switching to a “pay yourself first” mentality means you’re committing to building wealth instead of simply keeping your accounts in stasis.
Start Investing Now
It’s a common misconception that if you are in your 20s, you’re “too young” to start investing. In truth, there is no such thing as being “too young” to start building wealth by investing. On the flip side, you may think you’re too old to begin investing effectively. This is also untrue! With the tools and platforms available today—like Tribevest—it’s never too late to start building wealth and working toward a financially free future.
Related: The New American Dream
If you’re looking for financial freedom, just throwing 3% of each paycheck into a 401K isn’t enough to get you there, but it’s an excellent place to start.
The next step is to put aside a set percent of your monthly income into an investment account. The barrier to entry for most wealth-building assets like real estate is around fifty-thousand dollars. Keeping a portion of your investment fund in mutual funds is a good way to outpace inflation as you build up enough capital to buy your first major wealth-building asset.
Let’s make our case for getting started now for those in the “am I too young?” camp. The main benefit of investing earlier rather than later is that, as long as you invest wisely in proven assets and funds, you’ll be able to start small and still out-earn someone who started investing more aggressively but started later in life.
The key is compound interest. Standard interest is the money your investment earns over a set period. Compound interest is the money your interest earns in that same period. In other words, the more money you have invested, the more interest you earn, and the more interest you earn, the more compound interest you earn. The earlier you start that cycle, the more wealth you’ll be able to build.
But you don’t want to wait until you’re 70 to be financially independent. The good news is, you can apply these same principles to any investment strategy. The sooner you start investing in assets that can earn you passive income, the more you’ll have to invest in other assets that can make you more passive income. And on and on, the virtuous cycle goes.
In short, you should take advantage of your 401K or IRA, but that should be where your investing journey begins, not where it ends.
Now, let’s take a moment to address the “it’s too late for me” camp. If you’re banking on compound interest and your 401K contributions alone, this may be an uphill battle. Fortunately, that doesn’t have to be the case. You can still reach your goal of financial independence by targeting high-value assets like real estate, collectibles, cryptocurrency, and more.
Have no fear if you don’t have the capital to afford the buy-in for these investments solo. You can use Tribevest to pool funds with friends and family and start your wealth-building journey together.
Related: Group Investing is the Future
TL;DR: The sooner you start investing in high-value, private assets, the quicker you’ll be able to build wealth and gain financial freedom.
Diversify Your Portfolio
We’ve probably all heard that we need to diversify our portfolios, but it’s sometimes hard to parse out precisely what is meant by “diversification.” There are a few schools of thought. One school is the one you’ll most likely happen upon by Googling the subject. Large mutual fund companies will inform you that you should diversify your investments between large, medium, and small-cap stocks. You should invest in international stocks or diversify your stocks across industries, like splitting your investments between tech and oil.
We disagree. All stocks fall into the same investment category, and if you truly want to diversify your portfolio, you need to invest in private assets. Let us explain.
Stocks are generally considered reliable and stable assets, but they are at risk of the market as a whole. Additionally, as we discussed above, investing in publicly traded assets alone will likely never be enough to win you financial freedom.
Let’s break things down a bit more. Ideally, you should allocate your investment-bound capital as follows:
- 50% in public assets
- 50% in private assets
- Of those funds, 10-20% of your investable capital should be invested with friends or family, AKA, Tribevested.
We’ve talked a lot about private assets. What options are available to investors looking for wealth-building, private investments?
- Real estate
- Venture capital
- Private equity
- Fine arts/Collectibles
- …and so much more!
Some of these investments have a high price tag, certainly. That’s where a platform like Tribevest comes into play. While you may not be able to afford the down payment on an investment property on your own, pooling capital with like-minded friends might just get the job done.
In short, the only way to truly diversify your portfolio is to venture beyond stocks and begin exploring alternative investments that have the potential to build true wealth.
Create Passive Income
Remember earlier when we said that not all assets are created equal? As we get into the topic of passive income, this will become clearer than ever.
What is passive income? Passive income refers to money you earn that requires little to no time or effort to maintain. Sometimes, people talk about passive income in terms of income you earn while you sleep. In short, passive income is regular income you earn from somewhere other than your employer or contractor.
What are some examples of passive income? Some small-potatoes examples include high-yield savings accounts or stock dividends. To get to “quit-your-day-job” levels of passive income, you’ll need to branch out and consider investments like:
- Rental properties
- Private equity
- Real estate investment trusts (REITs)
- Becoming a “silent” business partner
Your eventual goal may be to invest in enough assets that produce passive income to forego traditional employment—AKA, financial freedom—but to start, we recommend hanging onto that day job.
A best practice here is to earmark your cash flow from early income-producing investments for use as capital for additional assets. At Tribevest, we don’t see a successful investment as the end game. We see it as the first step on your wealth-building journey! Setting aside the capital earned from early investments will help you access higher-value investment opportunities down the road.
Manage Risk without Sacrificing Returns
Many people wary of investing note that risk is the leading cause of their concern. Investing their money is too risky—what if they lose it all? No, it’s better to just keep my money in a savings account where it’s safe. We disagree.
A savings account is the riskiest investment of all.
When you put your money into a savings account, you’ll earn a bit of interest, but you’re still guaranteed to lose money. How? Because the interest you’re making is lower than the rising inflation rate.
If you’re looking to build real wealth, the fact of the matter is you’ll have to take a bit of risk somewhere. The trick is diversifying your portfolio in a balanced way, allocating some funds to more stable, low-reward investments like stocks, and allocating some to investments more likely to build significant wealth.
Investing in real estate, a start-up business, or cryptocurrency might feel risky, but you should be investing up to 5% of your investable capital in high-risk investments. Additionally, if financial freedom is your goal, it may interest you to learn that over 90% of the world’s millionaires made their fortune by investing in real estate.
One way to lower your risk while maintaining your chance at receiving incredible returns is to invest as a group. When you invest alone, you may be able to purchase a single rental property, which puts all the risk on your shoulders.
Pooling capital with friends and family using a tool like Tribevest may allow you to purchase multiple rental properties, for example. By spreading your investment over multiple parties and multiple properties, you lower your overall risk while simultaneously opening the door to exceptional returns.
Investing as a group is an excellent way to spread risk, access higher-value assets, and build wealth and relationships simultaneously.
Building Wealth with Friends Using Tribevest
Building wealth isn’t just for the wealthy - it’s for everyone! You can start building wealth today by setting up processes for saving cash, investing now, and investing smartly. One great way to reduce risk, diversify your portfolio, and have fun while doing it is to invest with friends and family instead of trying to forge your path alone.
If you’re ready to level up to a higher investment class and start building significant wealth, Tribevest is here to help! Our alignment and collaboration tool arms you with everything you and your friends need to take the first step on your journey toward financial freedom. Explore the Alignment Tool for free today!