Updated 7/29/2024
When someone says “FIRE!!” Is your first instinct to run for the door? I think I’m at the point now where I’m ready to talk about my Roth IRA and some of my wealth-creation strategies…
Let me explain…
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F.I.R.E.
For those of you who might be unfamiliar, FIRE, to some people, stands for Financial Independence Retire Early. In other words, its people working towards the common goal of financial autonomy. Wealth creation strategies are exactly that – finding ways to create long-term wealth for you and your family.
In general, at a very high level, I agree with many of the lessons that Dave Ramsey teaches, especially for someone very new to taking control of their money. The more in the weeds we get, the further that my views align with Ramsey’s, but one thing that I will never disagree with him on is this quote:
“Live like no one else now, so later you can live like no one else.”
I just love that quote so much. Essentially what he is saying is that if you bust your ass right now, then in the future, you can reap the benefits. If you work hard to set yourself up for financial autonomy, you can coast better in life. I think that’s so incredibly motivating. So, how do you do that exactly?
5 Wealth Creation Strategies
By defining your wealth creation strategies.
So, what exactly are wealth creation strategies? The Financial Dictionary defines them as an accumulation of assets (especially those that generate income) over a long period of time.
So, if I had to break it down into my categories, I think it would be in the following five categories:
- Reducing Debt
- Increasing Active Income
- Increasing Passive Income
- Reaching for Financial Autonomy
- Life After Death
Reducing Debt
This one is simple – pay off your debt! Boom. Next, right? Wrong!
This might seem simple, but there’s a reason that I have it listed as #1.
Per debt.org, the following age ranges have the following amounts of debt associated with them:
Can you imagine hitting 65 and being ready to retire but still owing $66K in debt? I can’t. That’s freaking awful. So, how do you get out of debt? Step 1 is to take control of your spending. You have to know how much you’re spending and then decrease it.
I guarantee that you’re spending much more than you thought you were. It’s so easy to let small purchases go unnoticed unless you’re actively tracking them.
If you’re not tracking them, you need to. You need to start a budget promptly if you really want to get going on this journey.
Throughout my financial journey, I have spent a ton of time creating, editing, and updating a spreadsheet to make it the most efficient tool that I can. I finally decided that I want to share it with anyone else who is looking to get on a budget (that works) and to get them out of debt. I can tell you from experience that it worked for me, and I know it will work for you as well. All you need to do is get your expenses, and then Doctor Budget will do the rest for you!
Once you do that, you can see how much you’re spending compared to your income. The next step is to pay down any debt that you might have at a high interest rate. In my eyes, “high” is anything over 6%.
“But Andy, my debt is all under 6% interest – what do I do now?”
First, that’s good. Second, I’ll tell you later.
Increase Active Income
This is the fun one! I love making more of that sweet, sweet ca$h. So, how can you make more money?
- Main Job
- Work more hours at your job
- Work harder and get promoted at your job
- Make a case why you deserve a raise – don’t just ask for one
- Get a second job
- Drive Uber/Lyft
- Find your special skill and use it
- Teach and Tutor
- Plow Driveways
- Buy items for cheap and resell them
- Blog
- Literally just get a second job somewhere
- Start your own business!
- Go be an entrepreneur. If you need help getting motivated for this one, just watch an episode of Shark Tank. You’ll get there.
- Ok – two quick side notes where I might lose you, but I think are funny…
- I am constantly having “Shark Tank” ideas that are ideas of things that are already invented, lol. My only one that isn’t is a baby stroller that also doubles as a golf bag cart…nothing like golfing with your little one! Good idea? No? Yeah, I’m leaning no…
- Every time I hear the word ‘entrepreneur,’ I flash back to college, when we’d yell ‘ENT…TRE…PRE… NEUR’ in the “They took our jobs” South Park voice. Yeah, our teachers hated us…
There are so many different ways to do this that I wanted to stop here before I had a billion examples. The fact is that you have endless opportunities in a world that’s so heavily reliant on the internet. Take the initiative and reach out to someone who is doing something that you believe in and ask if they need help.
Show someone a way that you can help improve their business. Take the bull by the freaking horns and get the damn thing done!
The only person keeping you from making money is yourself. You can only reduce your expenses so much, but the amount of money that you can make is literally indescribable. If you want it, go get it. If you don’t, keep watching four hours of TV every night and tell me that you don’t have time.
Increasing Passive Income
Passive income and active income can overlap depending on your usage, but it’s very important to identify the difference. If you’re driving Lyft 10 hours each week, then that’s active income. If you’re only driving when you want some beer money, you guessed it – passive income.
The key is to understand the intention and the repeatability of the action. Passive income could be doing one-off jobs like helping someone move, looking for a short-term project on Craigslist, making furniture and then selling it, delivering Grubhub, taking dogs on walks, really anything.
These might seem farfetched, but I truly cannot stress the importance of having some sort of secondary income, whether it is passive or active.
Now, a slightly more sophisticated passive income source is real estate investing. I am by no means a real estate investing expert, as I don’t own any properties, but I know many people highly recommend it as a stable, secondary income stream.
In a sense, it’s almost like a monthly dividend with the rent payments.
Now, unlike a stock, the heater can break. Your tenants might need to be evicted (I guess sometimes we do evict our stocks, lol), so that’s something that you need to take into consideration. Still, real estate is a way to allow you to build some steady income streams and also accumulate wealth through the property value of the rentals that you’re acquiring.
If I had to summarize these last two sections into one, it would be simple: Take your free time and turn it into money time. You have time to make more money if you want to.
Reaching for FI
Once you’ve reached a point where you no longer have to focus on budgeting and reversing the trend of spending more than you’re earning, you can finally start to reach for financial independence! Honestly, this is the easiest step by far.
At this point in your journey, you’re so motivated and focused on saving money that it’s legitimately addicting. Putting money in every month and investing it into the market becomes a bordering unhealthy habit.
For perspective, when I first started my investing journey, I was so addicted to making my life as efficient as possible that I tried to plan my budget to the exact dollar and then invest all of the rest, which at times caused me to almost overdraft my account, lol.
I hate having extra money in my checking account because it’s not earning any interest, so it’s literally just sitting there. But sometimes, it’s better to have some peace of mind than to be 100%+ optimized.
So, you’re saving more than you’re earning and want to get ready for FI. What do you do now? Well, it’s simple!
First and foremost, max out your employer’s maximum if you have a 401K. To be honest, this absolutely should be done before making any sort of extra debt payments.
I almost said I left out the word ‘extra’ there because you could make a legitimate argument that you should max out the 401K before paying for your car payment, but that’s a fine line, and while mathematically that is true, I can’t advise someone not to pay their car loan and eventually get their credit messed up and there care repossessed. Sometimes, there is more than just the numbers…a lesson I must teach myself daily.
But yes, max out that 401K match. You’re getting free money right off the bat. If you make $50k/year, and your employer matches 100% of 4%, that means if you put in $2000 then they will also put in $2000. Do you know what $2000 would be worth in 40 years at an 8% return?
Nearly $87K.
So, you paid $2000 to make $87K when you retire. That’s a no brainer.
Next, match out any other tax-advantaged retirement accounts like an IRA. When looking at an IRA you have two options, either Traditional or Roth, and both have great advantages. The limit for these in 2020 is $6000, so definitely try to hit that.
A HSA also falls into this bucket for me because it’s very similar as it’s tax advantaged and then allows for you to withdraw at age 65 for any reason you want – so it covers you for medical purposes and then you can claim the remaining funds at the end, penalty free.
I’m going to throw the 529 in this bucket too because if you’re planning to pay for your kids’ college or further education then this is going to be very important to plan for. The main point here is to take advantage of all tax programs that are available to you.
Life After Death
The best thing that I think we can do for people is to set others up for success. In my eyes, that means leaving a lasting legacy by improving the lives of others after we are gone. Step 1 is taking care of our own family. You can do that with life insurance for when your unfortunate time comes, and guess what, financial gurus literally love short-term life insurance.
You can also do simple things like opening 529 accounts for grandchildren (or even just contributing to ones that your kids have for their kids), buying stocks for your grandchildren for them to access when they’re old enough, or literally anything else.
But even more important than helping them financially is helping them educationally. So many people, and even very, very smart people, have no idea about the stock market or how it works or anything like that. It absolutely blows my mind, and it’s truly sad.
I think that for those of us who are taking the bull by the horns to learn about these wealth-creation strategies, it is our duty to teach others about them. And I mean that sincerely—it is literally our duty to do this.
If you care about someone, you should make them aware of all of these tools that are available to them. I know people who make much more money than me who have literally no savings whatsoever, and it’s just depressing. People get so caught up in the lifestyle creep and trying to keep up with the Joneses that they lose sight of what’s really important to them.
If a big house is all that you need to be happy, then buy a big house. But if you don’t care about a big house, why are you house poor? It’s imperative that we all find the true root of our happiness and work towards that. It’s truly not too hard—reduce your debt, increase your passive income, reach for FI, and then plan for life after death—that’s it.
If you can follow these steps, you’ll be set up very well for the future—I assure you of that.
