Do you want to know how to create wealth? If yes, you are not alone! Wealth creation is sought after by many but achieved by only a few! Ever wondered why? That’s because we’ve never mastered it and very little information is open knowledge.
In this ‘Wealth Creation Series’, I will lay down a the best and most practical 3 step framework to successfully create wealth. The content here is purely based on my experiences, observations, and research on the topic. Hope you enjoy reading it!
Warning
Before we dive into the dynamics of wealth creation, let’s understand the nature of this post & series, who it is for, and who it is not for. The series would be an extensive note on the topic of wealth creation covering some laws of money, pointers, anecdotes, examples, and explanations, all encapsulated in a 3 step framework. This Series is relevant for anyone who is willing to understand the process of wealth creation and be financially successful in life. It is meant to lay the basic foundation for creating wealth, irrespective of your current financial situation. It is certainly not intended to engage someone looking for a shortcut or punchy text which is meant to entertain lazy individuals in search of amusement. If you are looking for an overnight miracle that will change your financial situation, this blog entry is unquestionably not for you.
Let’s begin by understanding the current situation of wealth globally. The numbers are dramatic but things will start making sense once we start to understand the framework of wealth creation. The distribution of global wealth as it stands today:
- 50% of the global wealth sits with only 1% of the people
- 85% of the global wealth is owned by only the top 10% of people. Way better than the Pareto principle.
- To top it all, the bottom 70% of the population owns only 3% of the global wealth.
The wealth distribution is extremely skewed. Is it by chance?
“If you took all the money in the world and divided it equally among everybody, it would soon be back in the same pockets it was before”
Jim Rohn
A very profound statement, if true (which I believe it is), begs an important question – Are most of us missing something? The obvious and short answer is YES!
To elaborate on this using an analogy, it is like we all want to play a game but we never got to learn the rules of this game. We play the game to the best of our ability but seldom win! Seems like we are playing a game already rigged against us.
Believe it or not, but I have seen the rules of money unfolding as one of the key differentiators between making it and not. I have a real-life story to share.
The story – Introduction
It’s about two of my childhood friends, Pete and Keith (names changed), from school. Both came from upper-middle-class business families. Both of them were academically average but very curious. Keith was a disciplined and good-boy kind of guy back in school. Pete was a very hard-working and street smart guy since childhood. Both of them were ambitious as well. So far, their background and personalities are parallel if not exactly the same.
Keith
However, Keith had his future figured at 17. He had his life goals set including a detailed dream-lining. His plan was very clear – finish schooling with science majors, complete college graduation as an engineer, be an entrepreneur, mint insane amounts of money, have a private chopper by the time he is 30 and have his claim to fame as a rich and impactful entrepreneur (Forbes 30 under 30). He is 33 now and still goes to work in a car, not the chopper he had planned for.
Pete
Hey, don’t lose all your heart just yet. Remember, for every 100 Keiths you have 1 Pete. Pete played to his strengths. In every life-situation, he always had an innate sense of business. His insights on what would sell and what wouldn’t, arbitrage opportunities on goods and services served him well. Pete realized that being an engineer back in 2005 and for the foreseeable future will sell like hotcakes. He moved to the States for higher education. Pete had a vision that a lot of us did not have back then. He knew that in order to be wealthy, one must follow the money and be where the money is. He did exactly that. Oil and tech were the places to be and he landed himself an Oil-tech job. He managed his money very well and today he owns two big houses and has multiple sources of income. This would definitely get him very close, if not already, to the top 1% of the wealthy people. All of this at the age of 33.
Key differentiators
How can we explain this stark difference in the outcomes for Keith and Pete? Did Keith lack something compared to Pete? Obviously yes! But it’s not what you would think. Keith had the right skills, the right mindset & affirmations to succeed, the ‘can do’ attitude, and also the ability to put in the hard work required. He also took a few risks which had a high likelihood of paying off big. So what did he miss? He started playing the money game without really learning the rules of money. Pete’s family had always been very open to discussing money with Pete. On the other-hand Keith’s childhood was very academically driven and not much exposed to the world of money. This was precisely a key factor that made all the difference.
Guess what, this is not just a story unique to my friend Keith. It’s a story most of us can relate to. We all work so hard and do everything it takes but still can’t really crack the code and be wealthy. On the flip side, the story of Pete gives hope and an important takeaway. Wealth creation is not some kind of genetic disposition or sheer luck. It is a process that is tightly kept secret but observable in public. Something that can be learned. It is not easy and I am not making any such claims. But it can be simplified by creating a framework that can work as a blueprint and guide us on the path to financial success. To understand the building blocks of our framework, we need to dissect the story of Pete and Keith.
The Global Income scenario
Before we move into dissecting the story of my friends, we need to understand the current income situation and what the difference is between an average income versus the income of the top 1%. How can we leverage the income difference between countries to improve the odds of higher incomes? As of 2020, the median annual household income data is as per the table below:
Regional Median Annual Income
| USA | $66,000 |
| UK | £30,000 |
| EU | €26,000 |
| Australia | $53,000 |
| Singapore | $52,000 |
| India | $1,700 |
The income threshold to be in the top 1% is different by countries, however, at a global scale, to be in the top 1% one needs an income higher than $745,000 annually. The disparity between the average and the top 1% is significant. However, what is even more striking is the disparity between the average incomes across countries.
So a person from India with a specific skill-set should try and move to countries like the US or Singapore to improve the odds of making it to the top 1% wealthy people. On a broader level, it can be seen as arbitrage, and the commodity is your skill. Obviously it is not as simple a decision to make as it sounds here because one must also consider the taxation on income. But that is a separate point of discussion. With me so far?
Key takeaways from the story
Now that we have all the numbers on the table, we can go ahead and breakdown the lessons to be learned from the story of Pete and Keith.
Lesson – 1: Mindset
Keith and Pete both came from a business family, however, Keith was mainly involved in academic discussions since his dad was a researcher while Pete had an opportunity to discuss money matters with his parents as a kid. This laid the foundation of their mindset towards wealth creation. Both had a very different relationship with money and wealth. Both had a very different idea about the relationship between time, effort, and money.
Lesson – 2: Analyze
Keith followed his passion for tech and graduated as an engineer in Computer science while Pete analyzed the market and created a synergy between his passion for tech and high paying opportunities in the oil and petroleum sector. This analysis not only helped Pete to decide the right career option but also strengthened his candidacy. He analyzed the disparity in compensation between countries. His decision to pursue a master’s degree from the US was analytically very sound and pragmatic.
Lesson – 3: Action
Keith put all his efforts and focus into looking for that one big opportunity and the right time to grab it. On the other hand, Pete started to leverage his education and skill-set to create a primary source of income through a small enterprise and then built secondary and tertiary sources of income through investments and real-estate. Early action in the right direction led to early success for Pete.
We came up with some really cool and fundamental rules of money by comparing and contrasting the journey of my childhood buddies. Although the story is specific to these two individuals, the learning is generic and vastly applicable. These lessons will become the backbone of our 3 step framework for wealth creation.
The three steps of the framework are as below:
Change your Mindset
Try to understand the system, do not resist it, or try to change it. In the end, if you do not respect the system, your odds of becoming wealthy are close to zero (unless you win a lottery). The context in which you perceive money needs to be fixed. Money should be treated as means to an end, not the destination.
You should move away from the mindset of working really hard for the money. You should rather think of ways to start making your money work for you.
Travel to new places, talk to people living in different cities or states or countries. Get a wider perspective in life. This will take you closer to living your dream life.
Analyze ‘YOUR’ Situation
Be objective in identifying your assets and liabilities. Anything that puts money into your pocket can be considered as an asset, while something that takes money out of your pocket is a liability.
Understand that risk is a subjective concept. Risk means different things for different people. Analyze your risk very subjectively and in the context of your situation.
Analyze and curate the information you are exposed to. The majority of the mainstream media will have a hidden agenda that will be pushed forward through the information they publish.
Take Action
Create your own mini-ecosystem. Avoid being a victim of the existing ecosystems or infrastructure. These are mainly designed to make money out of you but are marketed as your convenience and security.
All of us agree that our education system needs to change. But, I would rather go ahead and ditch the regular education system and seek education through alternative means. You must identify a role model who is successful and whose journey is aligned to your objectives and goals.
Minimize the usage of smartphones. Do a digital detox every once in a while (every weekend). Turn your smartphones into assets rather than allowing it to distract you from your objectives.
Conclusion
To summarize, the framework consists of three steps. Each step is based around a theme and each theme has multiple ideas presented in succinct actionable sentences. A major takeaway from this overview post is to understand the global wealth disparity and to attribute this to a series of factors related to the mindset, analysis of the situation, and the direction of action. If you think wealth is a matter of luck or chance, you are not only delusional but you are also losing at the game of creating wealth. Rules of money exist and we must learn them in order to increase our odds of being wealthy.
Each theme requires a blog post in itself so that we can cover each idea in detail outlining clear action points. The next blog post to this series will be about ‘Mindset Change’.
If you liked this blog, check out my other articles here!
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