Where Are You In the Wealth Journey and What’s the Highest Impact Objective For You Next?



​​​​People are always asking me questions about wealth building, investing, etc. whose answers lie not in a “yes” or “no” but rather “when”.

What am I talking about?

Well building wealth is like building a house or baking a cake.

You’ve got a whole bunch of things you need to do but the order you do them in matters.
“Should I build a roof?”

“Well that depends…have you poured a foundation yet? No? Then no it’s not time to build a roof yet forget about that until later.”

Same is true in building wealth: “should I be putting money into a 401K or RRSP or equivalent?” That depends, do you have consumer debt? Yes? If so then no, pay off your consumer debt first.

There’s a couple dozen of these milestones so here we’re going to lay out for you the exact order of steps that’s optimal so you can identify where you’re at and what to do next.

The Order is Optimal not Always Essential

At Richucation what’s the objective?

To get predictable results as quickly as possible with as little effort as possible so we can enjoy more life.

We want to greatly reduce the risk of failure so you don’t spend years trying to achieve financial success, fail and never get to enjoy the fruits…if this was the case you might as well have spent the same time doing the things you love (great when what you love is entrepreneurship).

This means getting results predictably not just by luck.

Second, it doesn’t make sense to spend your whole life working for something only to achieve it at the end of life and never be able to enjoy the fruits hence we want to achieve results faster hence great technique and education.

Finally, we want to enjoy the process along the way since anything can happen in life this means minimizing the effort along the way.

With this in mind we normally seek out the essentials (those things you can’t succeed without and this leads to The Formula).

We talk about three important things to achieve this goal:

This is different from most every other training on the planet, which focuses on high level tips, tricks, strategies, etc. that don’t always work and often achieve relatively little impact.

These are designed to achieve results all the time (hence essential) and hence give predictable results for our clients.

Sequence is sometimes essential but not always.

In what we’ll describe here we have an example of this.

Could you put money into tax deferral vehicles without paying off consumer debt?

Yes, of course you could but it’s not optimal.

Remember our goal is to get results faster so you don’t have to do it this way this will simply get you faster results on average.

It’s also true that sometimes doing things differently could work out for you by getting lucky and might pay off.

The problem is luck can’t be replicated consistently in a system that works and often introduces a lot more risk.

Remember we said our goal is to get predictable results so what we’re outlining here is designed to put you in a strong position predictably as quickly as possible with minimal effort hence what will follow.

To help understand this we’re including a description not just of what to do but why to do it in this order since so many people screw this up hopefully understanding why will help you to actually stick with the plan when you’re tempted to deviate and as a result you’ll get more consistent results that work out much better in the long run.

Lesson you’ll get the best results if you don’t skip steps.

Understanding the Wealth Scales Map

To understand the sequence of building wealth we created the Wealth Scales Diagram (this should have been emailed to you but if it hasn’t been click here to have it emailed to you along with the checklist/cheat sheet for building wealth).

The wealth scales function a bit like a pendulum flowing back and forth starting on the left and moving to the right then back.

​There are four sections on this scale on the left side of the wealth scales we’ve got Income and Saving & Spending, this is where you’ll start as we’ll see and why.

On the right side is Investing and Preservation & Protection again starting on the left with investing and moving towards preservation and protection, for reasons we’ll see later.

These help to depict the two aspects of wealth: profitable cashflow (on the left) & net worth (on the right).

There’s two other parts to be aware of:

  • The stand showing the blend from focus on opportunity to risk progressing from left to right
  • The leverage point between the scales (think of the pivot point in a lever or teeter totter), which represents leverage. Leverage you’ll see starts at zero progresses upwards then goes back down to zero from left to right representing the ratios you should maintain as you progress through your wealth building journey

You can think of the progression of where to focus on the wealth scales as follows. 

You’re always trying to achieve balance, at first the left side is up so we want to add to the left side, which will cause the weight to force it down, this causes the right side to rise so we focus there, back and forth much like how we hike up a mountain at angles rather than directly.

Hopefully this is clear based on the diagram and will become more clear as we walk through the steps now.

The Logical Starting Point

When you get stated what have you got?


No income, no assets, just the need to live.

In other words, even when you’ve got nothing you’ve still got bills so your first objective is to be able to cover those expenses or you’ll be going into the hole (possibly literally and figuratively).

So, the starting place is GET INCOME. This is step one.

At this stage you’re not particularly concerned how you get it only that you have income to cover your basic needs/expenses. You don’t worry about how to reduce your expenses because if you can’t pay them anyway what difference does it make? You don’t worry about investing because you don’t have anything to invest, likewise for preservation.

So step one is to create at least a basic income we’ll talk later about boosting this income. If you don’t have any income take care of this immediately and don’t worry about anything else.

The Logical Next Step

As soon as you’ve created income your immediate question becomes what to do with it?

At this stage we’re not talking about investing or any such thing because you don’t have enough to worry about that.

The important issue here is to make sure you’re practicing smart spending (minimizing your costs) to save as much of it as possible so you’re getting ahead.

The real jump between the left side (building income) and the right side (building net worth) is getting ahead each month.

The easiest starting point here is to practice what we call Waterfall Money Management, which is the simplest 4 step money management system you’ll ever find to get you ahead each month and ensure you address the most common money management mistakes easily.

You’re going to repeat this pattern of make income, management your spending until you’re able to get ahead each other saving at least a target 10% of what you’re earning (see Waterfall Money Management for more details).

The Most Logical First Step With Your Profit Fund/Savings

As soon as you follow the Waterfall Money Management System, which is really just the natural logical way to spend sequentially so you’re always getting ahead you’re going to end up with a profit fund.

The question then becomes, “What do you do with this profit fund?”

There’s two steps at this stage to be carried out in order:

  1. Pay off consumer debt – consumer debt = any debt whose interest rate is 7% or higher
  2. Build a reserve fund of 3 months expenses – this is money you never touch it’s set aside for an absolute worst case scenario

Remember this order is very important you pay off the consumer debt first then you build the reserve fund.

Why do we pay off the consumer debt first?

By paying off debt you’re essentially building savings (in the form of available credit) while at the same time earning a risk free rate of return on your savings.

Think about it this way. You want to have access to your money in case something goes wrong, you’ve got a rainy day, etc.

On the other hand, you want to be putting your money to work for you immediately.

If you just put the money in a savings account, then it wouldn’t be working for you providing you a rate of return (the money you use to pay off debt is literally earning you a risk free after tax return equivalent to whatever the interest rate is).

On the other hand, if you took this money and invested it or something similar then if something went wrong and you needed the money you could be forced to sell at a loss, might not be able to access the money, etc.

By paying off debt you have the best of both worlds. You also show good repayment history, which helps with accessing additional credit and building one of the 4 Types of Financial Wealth.

Hint – if you follow our system here you’ll automatically build all 4 Types of Financial Wealth.

Why pay off only consumer debt vs all debt?

There’s good debt and there’s bad debt.

Good debt is debt that’s earning you a rate of return greater than the cost of the debt and therefore accelerating your financial progress.

Bad debt is debt not providing you with a rate of return and simply costing you money.

Consumer debt is bad debt and you want to get rid of it because on a risk weighted basis you probably can’t earn as high a rate of return as the debt service is costing you.

What does this mean?

Say you took $10,000 and invested it what rate of return could you reasonably expect?

The S&P 500 including dividends has averaged a little over 9%/year. for the last 100 years or so but this also has ups and downs so during any period you could do much worse.

Hence on a risk weighted basis you’re better off making another choice.

This is also before tax so once you pull taxes out you’re talking about around 7% maybe a little less.
When you pay off debt you don’t have any risk, you are truly getting that total return immediately without any chance of it going up or down, etc.

You don’t have to pay any tax on those returns either it’s after tax dollars going straight into your pocket.

And having access to a bunch of credit helps to make you nimble.

This is at 7%...many people are paying 18%-24% in consumer debt service costs, which you’ll pretty much never make on a long term risk weighted basis after tax (Warren Buffett averaged 29%/y for 13 years and you’re no Warren Buffett so this should tell you something).

This also increases your income every month by decreasing your interest expenses, which helps get you ahead (growing cashflow at this stage is important) allowing you to recycle more into savings rapidly.

Let’s Talk About This Reserve Fund

A reserve fund is simply money that sits waiting for a rainy day.

You don’t want this to be too much money because it’s latent capital doing nothing for you in terms of earning you a return.

What it is doing is providing you with a margin of safety in case something goes wrong.

What happens if you lose your job?

What happens if you get injured?

What happens if you have a sudden large unexpected expense?

If you don’t have a reserve fund you’re either screwed in this situation or you have to borrow consumer debt at high interest rates, which ends up costing you a lot more.

Long run this small cash cushion is only going to represent a very small percentage of your total holdings but for now when you’re getting started and you’re vulnerable it makes you safe and helps with your peace of mind.

At this stage we’re recommending this reserve fund equals 3 months of your total monthly expenses.

If you’re familiar with our Waterfall Money Management System you’ll know most people under estimate their monthly expenses and you’ll know how to calculate your real monthly expenses so you’re safe.

Click here to download the monthly spending sheet to get a thorough idea what you’re really spending.

As your expenses rise always top this cash fund up so you’re good to go.

Your goal should be to pretty much never touch this money. It definitely isn’t for buying gifts or splurging on yourself, paying for vacations, etc. It’s there for a worst case scenario.

Boost Your Income

With your profit fund on auto-pilot for a little while until you’ve paid off your consumer debt and saved up a 3 month reserve fund it’s time to get back to boosting your income.

The best easiest way to understand how to boost your income at this stage is through The Golden Path & 6 Resources methodology.

This is the sequential process you can go through to radically increase your income fairly quickly once you get on the path.

Your goal is to grow your income to the point where you can be setting aside at least 30% of what you’re earning monthly into your profit fund.

This is going to get you ahead big time, give you options and allow you to start having your money work for you.

Accelerate Savings With Better Money Management

Obviously, we don’t just look at what we make we also look at what we KEEP.

What we keep is based on how we’re managing our money and what we’re getting for each dollar we spend.

To do this starts with making sure you’re properly measured all your expenses (download our free monthly expense tracking checklist to make sure you’re being thorough).

Make sure you’re measuring not guessing and update your numbers ideally once a month to keep on track.

One magical thing you’ll find is simply by measuring what you’re spending you’ll tend to spend more efficiently. Awareness will also help you feel more in control of your finances.

If you’d like software to help you we recommend www.mint.com as a simple free online app to make the process much easier.

When you know what you’re spending on an annualized basis start with the largest expenses and work down to see how you can reduce those expenses or get much more value from the money you’re spending.

Consider the Dream Life Ratio in this as well as applying the tools for getting better deals.

Aim to spend probably 95% of your effort on growing your income and 5% of your effort on managing your money better since you can’t cut your costs to wealth, you can only reduce expenses so much but you can grow income unlimited.

How to Start Investing

At this stage your income should be growing (constant process), your money management should be well under way and you should be saving a decent amount.

You’ve paid off your consumer debts and you’ve got a 3 months reserve fund. (This is the trigger to focus on this step, which will be really quick then you can jump back to building wealth and managing money better).

It’s now time to start investing but only at a very superficial level.

What do we mean by this?

​You don’t want to invest yourself into learning investing, which means you don’t want to do anything fancy.

Why not?

Because your return on your time by increasing your income is far greater than your return on your money by learning to invest well at this stage.

This is an EXTREMELY important point most people overlook.

A lot of people start pouring themselves into learning how to invest too early and slow down their financial progress as a result.

Let’s consider the numbers.

Say you’ve got $50,000 to invest (probably you don’t yet but let’s just say). You can easily invest this money at 5%/year after tax very close to risk free in other words generating you $2500/year in growth.

Let’s say by some magical fluke you could somehow increase your returns from 5% to 20% (possible but extremely difficult, almost no one does this consistently).

This would be an increase of $7500/year in income.

If you’re working 2000 hours per year, which is typical this would amount to a $3.50/hour raise.

How much time is it going to take you to learn to increase your investment returns by that much?

At LEAST 2000 hours AND there’s going to be massive risk you’re taking on of actually losing your initial investment. In fact most people never achieve that goal.

By contrast what if you were to take that same time and invest it into increasing your income how much could you boost your income?

If you’re following our methods you could EASILY increase your income by 3-4 times that much or more per year by following The Golden Path and our Income Supercharger Methods.

In other words the opportunity cost between what you’re making extra in investing and what you could be making extra in income is about 400%.

There will come a time when putting your energy into mastering investing is the best thing you could do but not yet, not until you’ve built up a larger nest egg.

There will come a time when putting your energy into mastering investing is the best thing you could do but not yet, not until you’ve built up a larger nest egg.

So, what can we do that’s super simple with our money at this stage?

First, it helps to realize what your realistic point is in life at this stage.

You’ve got income but not a lot.

You’ve got savings but not a lot.

If something goes bad in your life you could keep the cash.

And in the meantime extra cashflow goes a long ways towards improving your lifestyle and making your life better.

These things won’t be true in the future but they are now so our investing decisions need to reflect these realities.

Starting with the fact that you might need the cash suddenly (need to sell your investments).

This is very important because most investments go up and down and part of the ability to get a good rate of return comes from being able to choose when to sell (when they are up).

You don’t have that option if something goes wrong, you have a sudden need for the cash but maybe the economy is also down (people tend to get unemployed when the stock market is down so if you have to sell then this compounds your problems).

To address this we want a stable easily collateralizable asset.

What does this mean?

It means if something goes wrong rather than selling the investment you can borrow against it at very low interest rates and wait for the price to recover before you sell if you sell at all.

There’s basically two types of useful collateralizable assets:

  1. Your house
  2. A dividend participating whole life insurance policy

You could also in theory use a government bond but it’s not as good as either of those two.

So, what you’ll invest it will be one of those two.

There is a third option, which is if your company offers a contribution matching pension plan you might want to use it because the money they match is essentially free money and you’re not likely to get those returns elsewhere.

Usually, we recommend most people do as follows:

  1. Take half of the amount of money you were putting into building your reserve fund and purchase a properly structured dividend participating whole life insurance policy.
  2. Take the other half and start building your reserve fund up from 3 months to 6 months (Bill Gates used to like to have 12 months expenses in the bank for Microsoft) saving up to purchase a principal residence.

Why do we recommend the dividend participating whole life insurance policy?

Remember, we’re trying to get the maximum results most predictably and achieve multiple goals with single actions.

A properly structured dividend participating whole life insurance policy has a whole host of advantages:

  1. It is contractually guaranteed meaning it’s pretty much the safest investment on the planet with about as close to zero chance of loss as possible.
  2. It pays a rate of return that’s typically better than a bond and a portion of those returns are GUARANTEED meaning they won’t vary with the market.
  3. It is tax sheltered, so all the gains are tax free.
  4. It provides life insurance in case something bad happens.
  5. It is creditor protected meaning if you get sued, go bankrupt, etc. usually creditors can’t go after it.
  6. If something goes wrong you can borrow against it at some of the lowest rates possible, without having to qualify and with no requirement to pay it back (about as good as cash).
  7. You’re able to use the collateralization aspect to treat it as a savings account that reduces your costs and increases your savings every month if done properly.

That’s a lot more benefits than simply buying say bonds, which have similar safety but lower returns and not nearly the broader benefits.

Notice how this helps to achieve our “preservation and protection” goals mentioned earlier without even trying? Btw our reserve fund did essentially the same thing.

This insurance policy shouldn’t form a huge part of your portfolio long term so you’re setting the budget now while your income is low but for the most part it’s not going to increase with time, so you’ll have more and more money going into the other aspects of your portfolio as your income increases.

*Tip – the life insurance policy will receive dividends you can choose to apply against your premiums, take or use to purchase what are called Paid-Up Additions. You want to max out your Paid-Up Additions.

Supercharge Your Income

With this foundation built it’s time to supercharge your income.

You do this by separating the money you earn from the time you invest (you might have already done this but if you haven’t this is critical to getting to the next level).

You do this by:

  1. Doing deals
  2. Selling someone other people’s time
  3. Selling products or licensing rights rather than expertise

This will open you up to doing bigger deals, which is key to 10x your income and making really significant money.

This will also put you in a position to free up your time and eventually transition from making it to managing it and enjoying whatever life you like.

Your objective here is to get your income to at least 10 times the average annual income in your area or whatever area you’d like to live in.

You can check out our material on Supercharging Your Income Today.

Optimize for Tax

Up to this point in time tax hasn’t been a big deal for you but the more you make the more the tax man wants to take and the bigger expense those taxes represent of your total income.

So, as you begin supercharging your income you simultaneously want to start optimizing as much as possible for tax.

There are some investment strategies we’ll use to achieve this objective but the biggest thing you can do is start a business (also helpful for supercharging your income) allowing you to spend before tax dollars rather than after tax dollars.

See The 3 Ways to Save on Tax.

Depending on where you live there could be dozens of small individual strategies to use and the bigger you get the higher your tax bill gets the more worthwhile it will be to engage in sophisticated tax planning and have a great accountant.

For example, when your tax bill reaches close to $100k/year (sometimes earlier) it becomes worthwhile to consider international tax planning strategies.

Purchasing a Principal Residence

At some point the extra savings you’re accumulating will add up to enough to put a down payment on a principal residence.

This becomes a fantastic investment opportunity if you do it well or could be a money pit and a recipe for loss if you do it wrong.

To learn how to do it write read How to Buy a House Like a Millionaire.

Why do we want to do this vs other options?

A house helps us to achieve several goals:

  1. If done properly it increases your monthly cashflow, which at this stage makes a difference for you while you’re building your income.
  2. Your principal residence is usually creditor protected to some extent (for example homestead exemptions in many US states).
  3. You’ve got to pay rent anyway so you’re essentially locking in your monthly housing expense long term meaning you get further and further ahead each year and rents go up.
  4. It’s another collateralizable asset in case the worst happens.
  5. It’s the cheapest easiest to get money available to us helping to start the road to leverage to multiply returns.
  6. It’s the easiest way to apply The Barbell Principle (you should also be aiming to use this in your income) to maximize returns while decreasing risk.

If for whatever reason you aren’t going to be buying a principal residence or can’t do so at the standards set in How to Buy a House Like a Millionaire or once you’ve purchased the house and you’re wondering what to do with the rest of your money as it grows here’s what to do.

Remember we’re paying a lot of attention to tax savings at this stage as a major expense so per The 3 Ways to Save on Taxes you’re going to want to maximize your contributions to a tax sheltered vehicle.

These include for example 401K and Roth IRA in the US, RRSP & TFSA in Canada, and equivalents in other parts of the world.

As with before especially if you’ve got an employer contribution matching program for a pension plan or stock purchase plan seriously look at that as a way to boost your returns.

What do you do with the money inside these vehicles?

At this stage you’re still not quite ready to delve into learning investing so you’re going to do as follows:

  1. Dollar cost average to minimize timing risk.
  2. Invest into either a low fee index of the S&P 500 (or comparable) or diversify between asset classes and rebalance your portfolio annually in a model similar to Ray Dalio’s All Weather Portfolio suggestion).

Don’t try to beat the market at this stage. Don’t look at what your holdings are doing, get back to making money so you’ve got more money to invest.

On average very few money managers can beat the general market so chances are you’ll do pretty well overall with this method.

Also, note that if you’ve been following this method you’ve already got a basic diversified portfolio offering you some shelter from ups and downs:

  • Cash reserve fund
  • Dividend participating whole life insurance
  • Real estate (principal residence)
  • Stocks, bonds, commodities (low allocation on the later since they aren’t productive)

This is a very solid foundation and you’re ready for anything so you can really start learning and cranking going forward.

Paper to Protect

This is the stage where it makes a lot of sense to preserve and protect by creating a will, a living will and taking out any additional insurance.

You’ve now got enough assets that there’s something to lose.

It’s not worth engaging in significant asset protection at this stage or diversifying globally, etc. that’s in the future for when you’re rich but it is worth having some solid protection.

This might also include a prenup if you’re getting married.

Diversifying Your Income

By this point your income should be pretty high and as a result the risk of losing the income is comparable to or greater than the benefits of growing it.

As a result you want to make sure you’re diversifying your income.

This is in a sense a way you can improve your saving & spending in an abstract sense while at the same time increasing your income.

You do this by having multiple streams, multiple customers, multiple products, multiple projects, etc.

You might also look at insurance if relevant at this stage.

Time to Learn to Invest

You’ll notice the weight of your journey has moved from an early heavy focus on building income to now more and more focus placed on investing.

When your savings have added up to around 10 times the average annual income it starts to make sense to learn investing.

It also makes sense to diversify yourself by sequentially buying investment real estate if you can find the right deals and buying paper assets (stocks, bonds, commodities) as well as possible investing in private loans and private companies.

What you really need to do here is understand how investing works and cultivate an investing edge.

This will take time and effort and a whole lot of learning but can pay off big time.

Scaling Up Investments

Once you’ve learned to gain a consistent investing edge it’s time to ramp up the leverage.

An investing edge means achieving better than market returns by enough that you can pay an investor better than market returns and still make a margin.

All of the biggest money comes from this leverage rather than from the direct profit margins.

You can learn how to scale up through Grow Impact.

Protecting Yourself from Leverage

If you’re going to take on investors and leverage it adds a lot to your risk so you need to learn to protect yourself.

This includes corporate structures, trusts, agreements, insurance, and best practices.

Becoming Rich

The cycle at this point can take you to pretty much whatever level you’d like in terms of financial success since the biggest financial success comes from reaching the point where you can apply scale and then repeating bigger and bigger.

There’s of course a lot of challenges and learning you’ll encounter and hence our various trainings offered here.

As you reach this point it becomes important to diversify internationally between regions, currencies, industries, and of course protect yourself from serious legal and systemic threats.

Toning Down the Leverage

When you’ve reached whatever point you’re happy with you want to slowly begin throttling down the leverage as leverage adds risk.

This might include selling some properties with leverage and paying off the rest.

It might involve investing without margin, placing assets into more stable assets, etc.

And of course if you want to pass on assets you’re able to consider foundations or other strategies depending on your goals.

Your options are nearly limitless.

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