Today we are participating in the second annual financial literacy carnival. This carnival was organized by Shannon from The Heavy Purse. The theme this year is your biggest ‘a-ha’ moment related to money.
Growing up I had a fascination with figuring out what made some people and families wealthier than others.
Back in the day most kids were interested in ‘cool’ things like expensive cars and big houses with all the latest gadgets. Sure, a nice house is something ‘cool’ to have, but I was always curious and interested in what those kid’s parents did to make the money that financed the purchase.
It seemed like no one else had this particular interest, and it’s still strange to see people get impressed about nice houses and other things but not become curious about how people attain those things.
Realizing the Power of Ownership
Like I said, as a kid I became very interested in individuals who became successful and earned a lot of money. I wasn’t just fascinated with the money side of it, but the fact that they were able to essentially live their life how they wanted and did not have to worry about the next paycheck or being fired.
At a very young age I read Walt Disney’s biography three or four times. I also read a lot about Charles Schulz, the creator of the beloved Peanuts comic strip. Finally, I started to read books by Donald Trump, Robert Kiyosaki, and other businessmen.
Reading about those who have succeeded in their business endeavors had a profound impact on my life and caused me to have an entrepreneurial itch that has stayed with me. When you own a business you leverage the efforts of others and you aren’t just taking home income; you are building something that can be sold for a lump sum at a later date. Even if you don’t sell your ownership stake, you can continue to grow your income through the efforts of your employees. If your goal is wealth, owning a business is practically a no-brainer.
While I currently have a 9-5 job I know that what I want to do long-term is own businesses. People that are able to build a business from nothing, or take a very small and defunct business and turn it into something great, are the ones who accumulate wealth. When you are an employee you typically have a set salary and what you produce does not equal what you are paid. Being the owner of a business is far preferable because of this very fact.
One quick note: it IS possible to become wealthy as an employee. There are plenty of executives, doctors, and lawyers who have built wealth while working for someone else.
From Business Income to Passive Income
I see accumulating wealth as a two-step process, with the ultimate end goal being to have diversified passive income. This could be ownership in properties that are managed by a third-party or dividend stocks that require little to no oversight. Even owning a business can be completely passive if you outsource everything.
Building a business can be an active endeavor, but there is a passive side to it. If you are never willing to outsource tasks, it makes it hard to grow. This is one thing that I think everyone can get better at. It’s hard when things aren’t done exactly the way you want, but having them done by someone else frees up your time to pursue other productive things. Eventually the goal should be to have a whole system in place that runs itself, so that you can spend your time as you please.
You don’t have to build a business to pursue passive income. You can slowly invest over time and if you are consistent and disciplined with your investing you can have enough money to generate passive income through your investments.
If you are inpatient or like the idea of building a business yourself, though, starting a side hustle is the best way to get going on a small business ownership path. Once your side hustle generates enough money you can quit your job and dedicate all your time to growing – and starting – businesses.
If you go this route, expect to fail many times (I already have) before finding something that gains success. Realize that even in failures you gain knowledge and wisdom that can be applied to the next project. Over time you are bound to find success.
____________
I learned these concepts at a relatively young age and they have stuck with me. They are definitely an important ‘a-ha’ moment for me when it comes to money. If you want wealth, focus on ownership and passive income. It’s not the easiest path but it gives you the best chance of becoming financially independent.
What is your biggest financial ‘a-ha’ moment? Do you have an entrepreneurial itch? Do you hope to have passive income some day?
Check out some of our favorite personal finance resources:
Are you getting the best credit card rewards? Check out the top cash back credit card offers (updated daily)
Make extra money: 15 ways to make money from your computer
Get the First Chapter Free!
Join our online community and get the first chapter of the book Student Loan Solution absolutely FREE!
I love reading the success stories of those who have made it in business. I seem to always learn a quality lesson by seeing what makes them tick and what they had to overcome. Almost always the challenges to overcome were great and that gives me encouragement in my own journey, knowing that someone else has done it.
Reading Todd Tresidder’s book “How much do I need to retire” changed my perspective to along the lines of your financial “A-Ha!” moment. The key to retiring happy and wealthy is to accumulate enough income generating assets that your passive income exceeds your living expenses. Instead of just stashing away cash, create income generating assets instead!
I enjoy reading successful stories as well because you can see how someone started something that became bigger than themselves. I do have the entrepreneurial itch and the crazy thing is that once you get started down that route you begin to see more and more opportunities.
This is great! I do feel that I have an entrepreneurial spirit, although it’s taken a while to get there. I hope to have more passive income once our rental homes are paid off in about 12 years!
Growing up, I always assumed that you did well in school and got a good paying job…that was how you would accumulate money. While there is nothing wrong with that, I think the path of building a business should also be encouraged. I’d definitely like to work on getting passive income as my salary as a government employee is limited…there will likely not be a big bonus or a big promotion, so I have to pursue other routes to achieve more income.
It’s funny because when I was younger, I only wanted a “traditional” finance job and could not imagine a career on my own. However, 13 years later, I could never imagine working for “the man” any more, and I LOVE pursuing my entrepreneurial endeavors. There are definitely many opportunities for failure and the path is filled with bumps, but it is also filled with great joys and satisfactions as well.
That’s awesome that you have had the right direction from an early age. I certainly wasn’t reading Donald Trump in high school and never knew anyone who retired early. I thing the whole balance between running a business and delegating is very important and something you always have to be adjusting but if you can find the balance, business ownership is a great way to build wealth.
Great post DC, a very important skill that very few people learn. It is highly critical that you spend less than you earn and invest the difference to create that passive income..
Feels excellent to be a part of an awesome community like this :)
There is little more gratifying than building and seeing the growth of my own business- even with modest income. As an employee, I have found that things are constantly being cut back, as an entrepreneur, it’s all about growth, and that’s exciting.
Brian @ Luke1428 It definitely is encouraging reading about others who have experienced success. I also like how a lot of successful people had humble beginnings. Many times people seem to talk down success and say that if you weren’t born into wealth or this or that situation that you have no chance. I disagree with that and like to read about people who proved the doubters wrong.
DebtChronicles Exactly! I got really excited reading your review of Todd’s book, and definitely have it on my ‘to read’ list. Age isn’t that important when it comes to retirement if you can just generate enough passive income to live off of. Assuming the passive income is sustainable, you can retire as early as you want.
FrugalRules Great point, John. Momentum is a huge thing when it comes to entrepreneurship and success in general. I remember Donald Trump saying in one of his books that the biggest mistake people make is killing their momentum.
Holly at ClubThrifty I’m excited for your rental income to go up in 12 years! You’ll have those paid off at a relatively young age. Passive income is amazing!
Andrew LivingRichCheaply I’m in the same boat. Even if there was room for promotion or higher positions, there is fierce competition for those spots…and that’s just to GET the job. I do think small business should be stressed from a much younger age than it currently is.
blonde_finance It’s not surprising that those who have gone the entrepreneurial route rarely regret it. It seems like if you can make small business and/or self-employment work I’m sure it’s a great feeling.
Eyesonthedollar I think delegation is a huge challenge for some entrepreneurs. I do a poor job of it so far, and now I’m stuck going the DIY route for a site redesign! It’s something I need to practice much more.
mycareercrusade Thanks for the kind words! I’m glad you are here. As far as I’m concerned, passive income is the key to wealth and always will be. It definitely takes some work to get there, though, but if you’re willing to sacrifice it will become a reality sooner or later.
brokeandbeau Great point, Stefanie. I love that aspect of entrepreneurship. Growth is the only way to go, but as an employee you might be removed from that part of the business or, as you pointed out, might be on the opposite end of the spectrum where budgets are constantly being reduced.
It seems that easiest passive income is renting homes. You can have someone else manage it or do it yourself. There is some overhead and you can add sweat equity if you are able. This is an oppportunity open to many people, but you do have to research your local market first!
“it’s still strange to see people get impressed about nice houses and other things but not become curious about how people attain those things.” A great point, DC. We are so quick to emulate but we don’t think about “how” they attained those things. Did they save for it? Or buy it on credit? Why did they choose to spend their money on this, rather than something else? People really overlook the value of passive income and it can play a huge role in helping you create the life you want. I also love the fact you were reading books on how to be an entrepreneur and create wealth when you were in high school. I wish more kids did that! Thanks again for sharing your money a-ha with us. I appreciate your support and participation in The Financial Literacy Awareness Carnival!
DC where I live there are so many rich people. I play volleyball in front of multi million dollar homes…SECOND HOMES!!! I always wonder what the hell these people do for a living too!
SquarePennies I agree. Especially if you have some cash to work with, you can really have flexibility to put as little or as much of your own effort towards it.
ShannonRyan Thanks for hosting the carnival, Shannon! It really is interesting how people don’t ask “how?” when it comes to building wealth. Even if you do ask “how?” it takes a decent amount of effort and perseverance to actually build wealth. If it was easy everyone would be doing it.
Beachbudget Haha that’s awesome and ridiculous at the same time…second homes!
DC @ Young Adult Money mycareercrusade yes and no it may take some work. As Mark Twain says find a vocation you enjoy and you’ll never work another day in your life :)
Am looking to start monetizing my site soon though with some simple ad words, or would you advise against until I’m more established.. Would be great to catch up (virtually) some time
Great post, DC. When I was younger, I always assumed that those with nice stuff had lots of money. Then I learned, through my banking and mortgage career that they often just had lots of debt. It’s so easy to assume that those with nice houses, cars, etc., have boatloads of cash, and to be jealous and/or aspire to be like them. Now I truly understand the difference between the affluent and the wealthy. It’s often two different things.
I agree with what Laurie argues… so many of the “wealthy-looking” people today are all talk an no walk, fancy homes with crazy debt! But not all “rich” people are in debt either.
I had married couple with a girl my age living next door to me where both parents worked and had good jobs (mom was a buyer for Neiman Marcus). They had a car phone in their Mercedes! This was 10 years before cell phones became common place, FYI. But they also lived in a house next to us, meaning that their house wasn’t purchased for more than $120,000 in the 80s. And with the fancy cars they purchased, they kept them for many years. And the dad was the cheapest guy I knew when it came to many other major expenses. They were also members of a country club and sent their daughter, my friend to private school, so they definitely spent their money in funny ways.
Although I don’t want to be a country club member, I did like they way they spent their money, getting better quality things while living in a modest house and not replacing expensive purchases (cars, appliances, etc) every 5 years. What they epitomized: living largely within one’s means.
Like you, I do want to get to passive income. I am decades away from it but it would be nice just to live on real estate income and not have to worry about pissing off a boss!
Laurie TheFrugalFarmer Great point, Laurie! I really like to learn about people’s jobs, incomes, and businesses and see how everything came together and what they did to get to where they are. Sometimes it’s true that what seems to be wealth actually is just a lot of debt financing.
Tara Zee I think we can be quick to either assume people with ‘nice’ things are wealthy or to assume they are riddled with unnecessary debt. I think there is a medium, such as the couple you described. I would like to have nice things, but I don’t absolutely need them. I do want to pursue financial independence and I believe if I go down that path (successfully) the momentum I gain will allow me to do most of the things that I want to do but can’t afford.
Great post, DC. Creating multiple sources of passive income is one that we are working hard on as well. One way we are working toward this goal is through rental real estate- we have two single family homes that we are renting out right now, and we are looking to add more to the portfolio. And I have to admit that when I see someone driving an expensive vehicle, I can’t help it that the first thought that crosses my mind is “I wonder whether they can afford that or not!”
colormefrugal That’s awesome that you have two single family homes that you are renting! I rent out our basement apartment, but would really like to add a couple stand-alone properties over the next ten years.
DC @ Young Adult Money Tara Zee Great point DC, I am all about experiences but at the same time find having a nice car rather than an A to B vehicle is something that for the time being can wait, while I focus on more important things i.e. travel :)