The 4 Pillars of Wealth Creation

Many people know how to make money but majority might not know the pillars of wealth creation. You need high income skills to create wealth. Making money, Saving, Investing and management are all steps to become rich.

What is wealth and how do you create it?  Let’s look at what I call the four pillars of wealth creation. Everything I am about to tell you about wealth building can be summarized in one sentence.

Find work you love doing and pays well, hold your living expenses constant, and reinvest leftover money into stocks, bonds, and real estate.

Rinse and repeat for enough years, and you’ll have built sustainable wealth. The word “sustainable” is the key.

We live in a world where many people want to take a shortcut to the wealth-building process by throwing their money into highly speculative assets like Bitcoin, NFTs, and options trading.

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While you can get lucky and strike it rich with these speculative assets, it won’t be sustainable because these can come crashing down (and stay down) as quickly as they shot up in value.

I have always been interested in wealth and the wealthy.  You may have noticed that this blog has a whole main menu area dedicated to building wealth – personal finance.

Wealth is the accumulation and possession of money and assets. Even though you may think it means the same as prosperity, the latter has a broader scope.

Prosperity is about striving and succeeding in life. It is an abundant state of mind. That is why anyone planning on being wealthy should prepare for being prosperous instead.

Many of the articles in that area focus on the demographics of millionaires.  And, the habits of millionaires.

Definition of Wealth

Wealth is an abundance of valuable material possessions or resources. Now, wealth: In My Terms – And Maybe Yours? Wealth is about a process in which we create and deliver value.

Furthermore, wealth creation is about long term approaches that involve your personal development.  And this development results in your ability to create and deliver more and more value over time.

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Creating and delivering value results in the ability to make money and accumulate valuable resources.  Those resources are how we measure a person’s wealth.

Now, that is pretty thought-provoking to me.  Stop and think about it for a minute.  Think about how it relates to you and your own pursuit of wealth.

The Foundations Of Wealth Creation

Since that is the definition of wealth that I’m using today, I want to unpack it.  And, I want to unravel it before we get started.

So, let’s emphasize some key points about creating money in abundance.

We think about delivering value and creating wealth over the long-term. And, we do this by practicing good money habits and through continuous self-development.

By delivering more and more value, we are able to earn and accumulate more and more resources.  These resources are accumulated over the long-term.  Therefore, wealth is not about getting rich quick.

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Wealth is defined by resources.  And, I like the word resources.  Here’s why…

Money, investments, and property are some important aspects of wealth-building.   On the other hand, it is not just about monetary assets like these.

There are other types of valuable resources you should accumulate to create true wealth.  And we will touch on those in a moment.

But now, let’s take this definition and review the 4 pillars of wealth creation.

The Pillars Of Wealth Creation

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With all the research and writing I have done on the topic, I wanted to reduce some of the things I have learned down to a few basic concepts.

And, share those concepts with you.  I call them the 4 pillars of wealth creation.

1. Create Wealth By Making Money

As far as you’re building & delivering value, making money makes sense.

When you make money, cutting down your expenses can accumulate assets to build wealth. Even if you start from zilch, you can still observe most business tycoons create their wealth. 

Now that you have understood the psychological aspect of wealth creation. Do not get too hung up on wanting to read all the personal development books in the library or kindle.

You need to take action and start creating wealth.

When a person can create and deliver value, normally they can make money and increase their income over time.  So, the ability to make money is the first resource we are going to discuss.

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Starting a business or a side hustle will help you tremendously.  Lots of people who have accumulated massive wealth have written about how they did it.

That is a good start if you lack ideas on what to do to make money.

Having the right profession will work too, so don’t be disappointed if you have a regular job. It can also help you achieve wealth. For instance, you can work and still invest in real estate.

During this stage, do not forget to dream big. According to Conrad Hilton, his formula for success was working hard, praying, dreaming, and thinking big.

Whatever you undertake, remember to excel at it. There is an old proverb that says that Excellence is profit.

a). Build A Fabulous Business

The other primary means to make money is to create and build wealth through business ownership.  Here you have to create and deliver value for your customers, not your employer.

Whether you work for someone or have your own business, ask yourself this question.  What is my unique value proposition or what can it be?  Then nurture it and develop it to make money.

b). Have A Great Career

One way of making money is to have a great career in the working world.

Becoming a millionaire is one way to identify wealth.  And, statistics show that most millionaires today work for someone.  In fact, less than 20% are self-employed.

These people develop valuable and marketable skills.  And sell them to an employer in exchange for compensation and benefits.

And take note of the word career.  When I think of the word career, I think about the long-term.

On the other hand, I didn’t use the word job for a reason.  Jobs are important.  But, a job is just a short term point in an otherwise long term career.

And remember, when we think about the pillars of wealth building, we are thinking long-term.

 

2. Self-Development – pillars of wealth creation

So far we have mainly discussed monetary resources.  But, as I said earlier, there are other forms of valuable resources that do not have a monetary value.  These resources are just as important in my opinion.

a). Education

Get a good education.

Education can be a college degree or specialized training.  Learn continuously on the job and through formalized training.

Align your educational and continuous learning with the type of value you want to create and deliver for your employer or business.

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In addition, accumulating assets requires continuous development.  No one was born a great real estate investor or stock investor.

Also, the more resources you have, the more you need to understand good wealth management practices.

Whatever you are doing, learn about it before you jump in and learn more as you go. By doing so, attracting money into your life becomes a continuous learning cycle.

b). Relationships

Whether you like it or not, the world of wealth creation goes through other people.  Even for us introverts, people are impossible to avoid.

So, building good interpersonal relationships is important if your goal is to attract an abundance of money.  Great relationships are an extremely valuable resource.

Nurture your friends and family relationships.  These people support you in tough times.  And celebrate with you during the good times.

Nurture your work and business relationships.  These folks will help open doors you never thought existed.

And be sure to give back.  Because creating a financial abundance requires it. And, over time, you will receive more in return than you ever give.

c). Health

The first one is health.  As I always like to say, it takes health to build wealth.

Earning money and accumulating assets takes energy, research, good decision making, and networking to name just a few things.

You need to feel good to be productive.  Eat well, get enough sleep, and exercise regularly.

These activities will go a long way toward protecting and improving whatever health and fitness level you have.

3. Debt

Now don’t get me wrong here.  I’m not a big believer in debt. In fact, I have spent most of my life avoiding debt and staying out of debt.  And, I would recommend you do the same.

On the other hand, borrowing money for the right reasons is one of the 4 pillars of wealth creation. Why?  Because sometimes you need to take on debt to accumulate assets.

For example, it probably makes sense to take on a mortgage to buy a house.  Otherwise, you will have to wait a long time to save up enough to buy your primary residence with cash.

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In addition, you may have a fabulous business idea.  Again, it may not make sense to wait until you have enough cash to fund your business start-up.

In this case, a business loan may be a good idea.  But, when it comes to debt, be smart about it. Use debt only to accumulate productive assets or support your money-making initiatives.

For example, you might need a car loan to buy a car to get back and forth from work.  That’s okay.  That debt is supporting your money-making capacity.

On the other hand, never use debt to buy consumer goods. This practice will not enhance your wealth-building capabilities.

4. Accumulating Assets – pillars of wealth creation

The third pillar of wealth building is investing in assets—anything that will increase your wealth without personal labor. This is the most popular pillar because we all want to build wealth without putting in the hours.

Investopedia describes an asset as “anything of value or a resource of value that can be converted into cash.”

A few major forms of assets which you can accumulate are Real Estate ( Primary residence) as the starting point. The moment you start to make money, you dream of buying your own residence. 

Whether your residence is a single-family home, condominium, so on and so forth, you still need to have an aspiration. 

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Most people think of real estate when they think of assets because it’s a physical asset. Obviously, real estate is an asset because it supplies one of the most valuable things in life; shelter.

Having a quality piece of property at a good location generates cash.

Okay.  So you are creating and delivering value.  That allows you to make money.  With the money you make, less living expenses, you should accumulate assets to build wealth.

This is true even if you are starting with nothing. Realize that most millionaires come from nothing to create their wealth.

Time & again we hear how taking a loan can help you get your dream house faster. But of course, it’s not the best thing to do.

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On the other hand, borrowing money for the right reasons can form the 4 pillars of wealth creation. 

Though, there are occasions when you need debt to accumulate assets. 

For example, it probably makes sense to take on a mortgage to buy a house.  Otherwise, you will have to wait a long time to save up enough to buy your primary residence with cash. 

In addition, you may have a fabulous business idea.  Again, it may not make sense to wait until you have enough cash to fund your business start-up. 

Let’s discuss some of the major forms of assets you can accumulate.

a). Savings and Investments

I research and write about a lot of savings and investment vehicles here at Dividends Diversify.  Most of which I own so I can write from my own experience and personal research.

Investing millionaires focus on these types of assets include:

• Bonds
• Mutual funds
• Precious metals
• Preferred stocks
• Common stocks
• Savings accounts
• Certificates of deposits
• Exchange-traded funds

b). Intellectual property

One last form of property is that of the intellectual variety.  This has become more important as the world migrates to knowledge-based economies and away from bricks and mortar.

Perhaps your unique way to create and deliver value is through intangible works.  This is also known as intellectual property.

Your intellectual property can be a tremendous asset.  They are creations of your mind.  Some examples include:

• Ideas
• Music
• Books
• Papers
• Articles
• Paintings
• Inventions

All of these examples can develop commercial value if you know how to go about it.

Your intellectual property has the potential to continue to work for you and produce an income as long as you live.  And some forms of intellectual property grow in value over the long term.

For example, writing and publishing this article for you today is a form of intellectual property!

c). Real Estate – Rental properties

For our purposes, when I refer to real estate, I am talking about investment properties, not the house that you live in.

Real estate can be a great investment, but it is often overhyped. I don’t want to dwell on the negatives of real estate, but in the short form, they are as follows.

• Real estate is an extremely undiversified investment.
• Real estate investing is not passive. You have a physical property with real people living in it. That will require time and energy.
• Investing in real estate is expensive. In addition to the upfront cost to buy a property, the closing costs like lawyers and taxes, you also have ongoing expenses like toilets that need fixing.
• Investing in real estate requires skill.

Rental properties are another form of real estate assets.  They can be residential rentals or commercial.

Some people swear by owning real estate for wealth creation and passive income.  Rental real estate is not for me.  One house for living in is all the real estate I care to own.

So be sure to do your research and know what you are getting into if you choose to accumulate rental property assets.

Real estate is not an investment, it’s a business.

d). Real Estate – Primary Residence

A great place to start is the purchase of your primary residence.  Your residence may be a single-family home, condominium or townhome.

If you are like me, you may not make a killing on property appreciation.  And be careful, do not buy more house than you can afford.  Or buy it in the most expensive part of town if you can’t afford that location.

Bad decisions related to your primary residence can be a wealth destroyer. But, even without significant price appreciation, owning a home for the long term is usually better than renting.

Your property’s price appreciation will typically at least keep up with inflation.  Part of your monthly mortgage payment goes to your equity in the home.  Not to a landlord.

5. Manage your wealth – pillars of wealth creation

Once you start making money, you have to be able to keep it.

No matter how profitable you are, you have to learn how to make the most of what you have. Money management is one of the main pillars of wealth creation you should learn.

Learning and applying principles like saving, investing, and living below your means or paying yourself first is essential to managing your finances.

Focusing on creating, saving, and investing wealth rather than expending makes the difference between rich and poor. What side do you want to be on?

Planning your purchases and having a budget will help you keep more in your pocket. Then invest what you have saved and use the magic of compound interest by reinvesting all interest or dividends you earn.

The work you put in to enhance your personal qualities and your financial situation is never a waste of time or resources. Money only magnifies or exhibits what is already inside you, either good or bad.

Summary – The 4 Pillars of Wealth Creation

Creating wealth is a long term process supported by these 4 pillars:

1. Making money
2. Accumulating productive assets
3. Taking on debt when necessary to support those productive assets
4. Self-development

Finally, seek professional advice before Investing your money! This is blog’s purpose is to inform and your duty is to take action the right way.