Everything You Need To Build Wealth.. In One Sentence

02/19/2014 03:10 pm ET | Updated Apr 21, 2014

Financial truths are simple.

In fact, the apparent complication of modern finance is really just a thin veneer of technical sophistication overlaying common sense ideas that any reader can understand.

Take wealth building as an example. There's endless complication surrounding estate planning, tax and investment strategy. It seems complex, but it really isn't.

That's because wealth building is so simple it can be explained in one sentence -- spend less than you earn and invest the difference wisely.

That's it. Seriously, if you just do this one thing right for an entire lifetime you will end up wealthy. It is literally that simple.

I'm sure you're probably disappointed because you wanted some new, cutting-edge strategy that you've never heard before. You wanted the secret, missing ingredient that has held you back and will allow you to produce previously unimagined success. Instead, I give you something so obviously true that it doesn't seem valuable.

However, this is a timeless truth that has worked far into the past and will continue to work far into the future. It is the same truth taught by Benjamin Franklin hundreds of years earlier and reiterated since then by numerous authorities including J. Paul Getty.

In short, if you want wealth in this lifetime with the highest probability of success, then this one sentence tells you everything you need to know. Spend less than you earn and invest the difference wisely.

Everything else is details.

Spend Less Than You Earn And Invest The Difference Wisely

Let's explore how you can put this one sentence into action so you can start producing results today.

The first thing you should notice is there are three separate but connected ideas in this one sentence. Think of it as a three-legged stool. And like all three-legged stools, it is only as strong as the weakest leg.

  • Leg 1 - Reduce spending by eliminating monthly expense programs and unnecessary luxuries and living frugally.
  • Leg 2 - Increase your income by improving job skills or changing jobs -- or consider working overtime or starting a new business.
  • Leg 3 - Invest wisely by learning what is necessary. You can implement a conventional asset allocation of stocks and bonds using low-cost passive index funds or you can purchase positive cash flow real estate in your local area using fully amortizing, fixed rate mortgages. Either strategy is proven and accessible.

In short, you must get all three legs right to maximize your wealth. If any one leg of your wealth building platform is wobbly then the formula won't work -- your stool will collapse.

Let's start by examining the first two legs because they create the gap between how much you earn and how much you spend, resulting in the savings necessary to supply the third leg -- investing -- with capital. Without savings you have nothing to invest.

  • Spend Less: Frugality teaches you to live on less. It requires self-discipline, making it a difficult path for many who experience it as sacrifice. Others savor frugality as a pleasurable journey toward simplification. The key is to connect your personal values to your spending so that every dollar has a purpose in alignment with your life goals. This will help you avoid increasing spending as you grow your income.
  • Increase Income: The advantage to increasing income is there's no limit to how fast you can grow your wealth because your earning capacity is unlimited. Many wealth gurus teach the income side of the equation as the "fast path" to wealth, but it will fail unless you also master the spending side of the equation because you're likely to spend everything you make.

Fortunately, legs one and two are not mutually exclusive. You can pursue both at the same time to maximize savings and achieve your financial goals in the shortest time possible.

Once you've established a regular pattern of savings then it is time to invest it wisely -- the third leg to your three-legged wealth building platform. Fortunately, this third leg is the easiest to implement because there are two well-proven investment strategies to pick from that anyone can implement with minimal training.

  1. Low Cost, Passive Index, Asset Allocation: You can master this strategy in short order using free, public domain resources found on the Internet or for less than $100 from books available at your local bookstore. It is a simple investment strategy as implied by the fact that it is passive and no financial advisor is required, thus reducing your investment expenses.
  2. Income Producing Real Estate: Another proven strategy is positive cash flow rental property using fully amortizing, fixed-rate financing to control interest rate risk. Again, anyone who has rented a property should have the intuition to safely explore this strategy with reasonable preparation.

The good news is either of these two strategies should provide a solid investment foundation for leg three once you get legs one and two producing consistent savings. As your wealth grows, you can dedicate additional time to growing your investment knowledge beyond this foundational level so that your financial intelligence grows as fast as your wealth grows.

The key is to not get hung up on details and take action sooner rather than later. Nothing kills wealth more than procrastination.

You now have everything you need to build wealth in this lifetime. It is all contained in this one sentence. The only thing standing between you and your wealth is the willingness to act on this timeless wisdom.

The Best Advice I Ever Got